Some art collectors in Hong Kong got a disappointing phone call from the auction house Phillips last week. They had consigned paintings for sale, anticipating a crowd of wealthy buyers of the kind that auctioneers have easily been able to rustle up for contemporary works in recent years, but bidders were hesitant.
“We had some very straight conversations, saying ‘There’s a different atmosphere, you’ve got to come down in price’,” Phillips’ global chair Cheyenne Westphal told the FT’s business of art summit in London this week. Young artists whose works used to sell at three times auction estimates in a speculative rush are now fetching half that multiple, she added.
There has also been a vibe shift in the luxury goods business, which is entwined with the contemporary art world. Shares in LVMH, owners of 75 luxury brands including Dior, Louis Vuitton and Tiffany, fell 7 per cent on Wednesday after it disclosed that a post-pandemic luxury spree had slowed in Europe, and US sales of spirits such as Hennessy cognac had fallen.
Call it an end to the “roaring 20s”, or just a return to normal cyclicality in luxury, but something is going on. It has been safe recently to bet on growing wealth, rising inequality and aspirational buying in China and other countries. But even ultra-luxury department stores think that some handbags have become (whisper it) too expensive.
LVMH has not fallen on hard times yet. The luxury conglomerate’s revenues of €62bn in the first nine months of the year almost equal the entire annual sales of the art market. LVMH sales grew at 9 per cent in the third quarter, respectable enough for Bernard Arnault, founder and chief executive, albeit a sharp deceleration from the previous quarter’s 17 per cent.
Perhaps luxury consumers are simply sobering up gently from a post-pandemic bout of consumption euphoria, when they decided that it was “better to enjoy life, rather than die rich”, as Luca Solca, an analyst at Bernstein, puts it. “It’s evident that the wave of post-Covid relief spending is starting to moderate and the luxury business is going back to being cyclical.”
It certainly does not feel like the moment to break open a bottle of LVMH’s Moët & Chandon champagne, or to pour some Hennessy VSOP limited edition cognac. War in Ukraine and the bloody conflict in the Middle East are a reminder of how far luxury is removed from many lives.
There are also obstacles to splashing cash: Xi Jinping has not only imposed his “common prosperity” agenda in China but made it tougher for those with wealth to get their money out. Andrew Fabricant, chief operating officer of the Gagosian gallery, told the FT summit about Chinese buyers using American Express cards to buy multimillion works at the Art Basel fair in June.
Art is at the peak of luxury. One of the reasons that the art market remains niche — unlike the luxury goods industry, it is smaller in real terms than a decade ago — is that the top galleries thrive on opacity and personal dealing with selected insiders. Making it hard to get inside the tent maintains prices, but also restricts new business.
Works selling for more than $1mn account for 60 per cent of fine art auction sales, so they are not accessible purchases. They are more the province of the super-rich, whom you might think could ride out a rise in interest rates and financial volatility without needing to economise on paintings. Yet the wealthy use financing, and sense market nervousness.
A Dior Jacquard dress is a comparative snip at $6,200 but the luxury goods business also relies heavily on the wealthy, rather than those who just want to signal their status with an occasional purchase. The top 1 per cent of shoppers buy more than 20 items a year and account for a quarter of luxury brand sales, according to Bernstein.
It does not take much of a behavioural shift to make a dent in the growth prospects of luxury groups such as LVMH, Kering and Richemont. Three or four fewer leather goods or fashion purchases by elite customers — those who get wined and dined and invited to special events — can have a big impact in Paris and New York.
Arnault’s insight that LVMH could ride a decades-long trend in favour of luxury goods came off so well that he is now one of the world’s richest people, so it seems unwise to bet against him too heavily. He believes that a focus on patient growth and enhancing the “desirability” of LVMH’s brands will keep working, even if the spending spree has abated.
But everyone hopes for a soft landing from a period of asset price growth and high demand, and that is not easy to achieve. It would be remarkable if LVMH and its rivals could slow smoothly to a moderate growth rate without first swinging the other way. The art market has never been good at pulling off the trick because auction confidence tends to evaporate suddenly.
I hate to break it to the luxury experts in obtaining high prices for desirable objects, but the Hong Kong lesson also applies to them. When the atmosphere changes, you must change too.
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