Last week, some art collectors in Hong Kong received a disappointing call from auction house Phillips. They consigned the paintings, anticipating a crowd of wealthy buyers, and auctioneers have made it easy to buy contemporary works in recent years, but bidders have been hesitant.
“We had some very direct conversations saying, ‘The atmosphere is different, you have to lower your prices,'” Cheyenne Westphal, global chairman of Phillips, told the Financial Times in London this week. Said at the Art Business Summit. She added that works by young artists, which used to sell for three times their auction estimates during the speculative boom, were now selling for half of their auction estimates.
The luxury industry, which is intertwined with the contemporary art world, has also seen a shift in atmosphere. Shares in LVMH, which owns 75 luxury brands including Dior, Louis Vuitton and Tiffany, fell 7% on Wednesday after it disclosed that the European epidemic The post-war luxury boom has slowed, and sales of American spirits such as Hennessy Cognac have also declined.
Call it the end of the Roaring 20s, or just a return to normal cyclicality in the luxury industry, but something is happening. Lately, it’s been safe to bet on growing wealth, rising inequality and a buying spree in China and other countries. But even ultra-luxe department stores think some bags have become (whisper it) too expensive.
LVMH isn’t in trouble yet.The luxury goods group’s revenue was 62 billion euros Sales in the first nine months of this year are almost equal to the art market’s sales for the entire year. LVMH’s third-quarter sales grew by 9%. Although it fell sharply from the 17% growth in the previous quarter, it was enough for founder and CEO Bernard Arnault.
Perhaps luxury consumers are just slowly waking up from their post-pandemic spending frenzy, as Bernstein analyst Luca Solca puts it, when they decide to “enjoy life better, not Die rich.” “It is clear that the wave of relief spending in the post-pandemic era is starting to slow down and the luxury goods industry is returning to cyclicality.”
Now is certainly not the time to open a bottle of LVMH Moët & Chandon or pour some Hennessy VSOP limited edition cognac. The war in Ukraine and the bloody conflicts in the Middle East are reminders that luxury has been removed from many people’s lives.
There are obstacles to splashing out cash: Not only has Xi Jinping pushed a “shared prosperity” agenda in China, he’s also made it harder for the wealthy to get their money out. Andrew Fabricant, chief operating officer of Gagosian Gallery, told the Financial Times Summit that Chinese buyers used American Express cards to purchase millions of works of art at Art Basel in June.
Art at the pinnacle of luxury. One of the reasons the art market remains niche—unlike the luxury goods industry, it is actually smaller than it was a decade ago—is that top galleries thrive on opacity and personal dealings with select insiders. Difficulty accessing tents maintains prices but also limits new business.
Works priced over $1 million account for 60% of art auction sales, making them difficult to purchase. They’re more the province of the super-rich, and you’d think they could ride out rising interest rates and financial fluctuations without scrimping on painting. However, the wealthy took advantage of the financing and felt the market’s jitters.
A Dior jacquard dress is relatively affordable at $6,200, but the luxury goods industry also relies heavily on the wealthy, rather than those who just want to assert their status through occasional purchases. Bernstein said the top 1% of shoppers buy more than 20 items a year and account for a quarter of luxury brand sales.
It wouldn’t take much of a behavioral shift to undermine the growth prospects of luxury goods groups such as LVMH, Kering and Richemont. Three or four fewer leather goods or fashion items purchased by elite customers (those who are wined and dined and invited to special events) could have a huge impact in Paris and New York.
Arnaud’s view that LVMH can ride on decades of luxury trends has become so well-established that he is now one of the richest men in the world, so shorting him too much would seem is unwise. He believes that even if the consumer boom subsides, the focus on patient growth and increasing the “attractiveness” of the LVMH brand will continue to play a role.
But everyone hopes for a soft landing during a period of asset price growth and strong demand, which is not easy to achieve. It would be remarkable if LVMH and its rivals could smoothly slow down to modest growth rates instead of first pivoting in the other direction. The art market has never been good at pulling its own tricks, as auction confidence tends to evaporate suddenly.
I don’t want to charge luxury experts with buying desirable items at exorbitant prices, but the lessons from Hong Kong apply to them too. When the atmosphere changes, you must change too.
john.gapper@ft.com
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