Does Price-Cutting Really Help Sell Art?

"In the past" - by which he means seven or eight months ago - "we might have offered a standard 10 percent deduction to certain long-term collectors or to people who purchased more than one work at a time," said Eric Brown, director of New York's Tibor de Nagy gallery. Nowadays, the standard has risen to 20 percent, "and, in some circumstances, we have gone to 25-30 percent."
The Tibor de Nagy gallery is not unique. The current worldwide economic slump has reduced demand for works of art, as well as the prices collectors are willing to pay for them. "When the market speaks, one should listen to it," said Paul Gray, director of Chicago's Richard Gray gallery, noting that he has "contacted all our artists about readjusting their prices. They get it, to a certain degree, but they don't have the conversations I have with clients." Those conversations, he claimed, increasingly are about what the stated price is and what the buyers believe they should have to pay. One dealer after another reports hard bargaining in what traditionally has been a handshake industry.
Technically, most art dealers are not lowering their prices ("that's bargain-basement mentality," Manhattan art dealer June Kelly said); rather, they are increasing their level of discounts. ("If someone rally wants a piece is ready to write a check," Kelly stated, "I'll try to satisfy them by taking a little extra off.") A number of galleries have long been willing to drop prices 10 or 15 percent when a collector purchases more than one item at a time, and San Francisco's ArtZone 461 Gallery, which started to accept credit cards within the past year, recently began offering an additional five percent discount for those paying in cash. Even so, some gallery owners speak openly of cutting prices. Rolland Augustine, co-owner of New York's Luhring Augustine gallery and the president of the Art Dealers Association of America, said that "I've told my colleagues that lowering prices is a perfectly acceptable thing to do. Look, I have 18 people here working for me and 15 artists that the gallery represents, so I need to perpetuate cash flow for all of them to get paid."
In whatever form it takes, dropping the actual price a buyer pays has the potential of raising tensions between dealers and collectors and between dealers and the artists who have consigned their work to the gallery. Augustine claimed that his 15 artists are "extremely flexible" with regard to prices, while Gray stated that "different artists respond differently." Some artists that the Richard Gray gallery represents are resistant to lowering their prices and prefer to hold onto their work, awaiting an economic recovery, while others more eager to make price adjustments in order to generate sales. Robert Fishko, director of New York's Forum Gallery, said that a number of his "artists have contacted me to ask what they can do to support the gallery," reflecting a willingness to take less than they might have a year earlier.
Not all artists are so willing. Trevor Winkfield, a painter in New York, strongly opposes increasing discounts, because artists start out with 50 percent off as a result of the gallery commission. "If you have a $10,000 painting, even in the best of times the dealer gets half, so the artist only receives $5,000," he said. "If you increase the discount, the artist may only wind up with $3,000 for a $10,000 painting."
The responses of collectors run a gamut of emotions. Long-time buyers who purchased a work by an artist last year at one price, only to learn that a similar piece by the same artist was sold for considerably less this year, may become upset and distrustful. Fishko described such thinking as "unreasonable," noting that "no two people pay the same price on an airplane." In an economic downturn, it is common for home sellers to drop their asking prices and for automobile dealerships to offer rebates and other incentives. Why should it be any different for collectors of art? "Buying art is an individual decision made at a specific time," he said. "No one forced you to pay the higher price."
There is no unanimity of opinion on that, however. A substantial price reduction is "a disservice to your clients," June Kelly said, and Louis Newman, director of New York's David Findlay Jr. gallery, claimed that maintaining the regular price structure "serves our core group of clients and gives them a sense of confidence" - confidence that the gallery isn't giving other people better deals.
However, Paul Gray noted that it is "not reasonable for a collector to whine" about other buyers obtaining lower prices. The art market, like all markets, goes up and down. "Some collectors are disappointed that they bought at the height of the market, but it is not reasonable to assume that prices only go up," he said, adding that most of his gallery's clients have a "mature understanding" of the vicissitudes of the art market.
It is not at all clear that lowering prices increases demand. Economists refer to this in terms of the "elasticity of demand" - demand shrinks or expands with higher or lower prices - but "demand for art is probably not elastic," according to John Silvia, chief economist for Wachovia. He noted that lowering the price for less expensive consumer items "brings people into the store, but if you have a product that is fairly unique or distinct, like art or jewelry, the answer is no, you don't lower the price." In a prestige realm such as art, cutting prices - "a painting that last week was selling for $40,000 is now for sale for $30,000," he speculated - could have an adverse effect. Art gallery owners who do slash prices risk "alienating two customers: You alienate anyone who bought from you in the past and now thinks he was cheated, and you create a doubt in the minds of future buyers about any work of art you sell. They wonder, Am I being cheated now."
Lowering the admissions fee at New York's Sports Museum of America, from $27 to $16 to $10 didn't help that institution, which closed earlier this year after a run of only eight months and poor visitorship. Enhanced rebates for would-be car buyers and falling home prices have not led to more sales but only underscore how unwilling so many consumers are to make purchases. In fact, the lowered prices may make potential buyers reluctant to act, assuming that prices will decline even further. Cutting the price of works of art similarly may convince collectors that they should wait for a bottoming-out. "Price is a signal of quality and your commitment that this is good art," said Gerald Friedman, an economics professor at the University of Massachusetts. "If you cut the price, it sends a signal that this is not a desirable product. If you are an investor, cutting the price is a sign that no one is going to buy it in the future." If someone wants to buy work by a particular artist, he stated, they will pay the going rate, rather than switch to other artists.
Remaining is the question of whether or not, after the current economic downturn has passed, galleries will be able to return to the standard 10 percent discount and a more predictable sense of pricing. "Demand will return, and that should help close the floodgates," Eric Brown said. "It certainly will take discipline, but I don't really know how it will play out."