Seasoned and novice art collectors are finding their way online as everyone from major houses such as Sotheby’s to smaller startups such as Artsy look to capture buyers and increase sales.
The space has seen much growth in the past year, and one local company is hoping to join the action with plans to go public in 2017 on the over-the-counter market.
Online art dealer and auctioneer Carlyle Galleries International Inc. launched last summer and hired David Williams, its first chief financial officer, last month with the goal of raising capital before filing an initial public offering.
Jack Marks, Carlyle’s founder and chief executive, said it might seem a bit early for a company of its size to seek a public listing, but he expects the move to bring in more investors and ultimately more customers.
“What we’re doing is a little bit of a nontraditional approach,” Marks said. “I’m exaggerating, but as a private company nobody cares. It’s much easier to raise capital (going public).”
The Beverly Hills company specializes in fine art and sells works that fall into what it considers the middle-market category, work valued between $5,000 and $100,000. Buyers can select from a range of styles from Italian renaissance-era pieces to contemporary paintings. Marks said the company has generated $2 million in auction sales based on the price of winning bids. Most works sell between $2,000 to $5,000.
Marks said Carlyle is similar to online luxury consignment shop RealReal in that it allows private individuals an opportunity to sell their artwork and save buyers from pricey retail markups.
“The major auctions like Sotheby’s and Christie’s are focused on the trophy markets or paintings that can sell for more than $10 million,” he said. “Most of the art hanging on people’s walls in the U.S., which can be monetized, is in the $2,000 to $3,000 category.”
Sotheby’s is the only major fine art auction house traded on the public market. Though its share price fell below $20 in February, its shares have held essentially flat over the last two years, closing on Sept. 15 at about $38.
But while the art world is embracing and even shifting to an online business model, the idea that it may be more profitable than traditional selling methods has yet to be proved.
David Kusin, whose Dallas research firm Kusin & Co. specializes in the economics of the art market, said selling online is quite difficult even for seasoned dealers.
“There are lots of moving parts and not one makes money,” Kusin said. “The reason why none of them have worked, apart from their intense complexity, is that the people who have founded them have no appropriate experience.”
Plus, the risk of fraud increases through online sales, he said, which can be a costly proposition.
“Web-based auction houses are notoriously lax,” he said. “Someone inside the auction house has to verify the work and the house must take responsibility for the verification or you have a huge risk. Fraud is equally shared by the consigner and the auctioneer.”
Kusin said even major players such as online auction house Paddle8, which merged with European auction house Auctionata in May, are struggling despite having raised more than $200 million in venture capital.
Making bid
Marks launched the business in June of last year after working as an independent art dealer for five years in New York and Los Angeles selling pieces to other dealers and at auction.
Carlyle hosts an auction each month, selling as many as 200 works during each event. Potential buyers have two weeks to preview a collection before bidding at a live online auction.
Marks said the average seller would be hard-pressed to find a good deal for their art, particularly works by niche artists, if they tried to sell it at a major auction house. That’s where Carlyle comes in – offering potential sellers an opportunity to market work in a hassle-free way.
Customers interested in selling their art through Carlyle initially send in photos of a piece and later send the work to the firm’s headquarters. Marks said only in rare cases would Carlyle agree to sell a piece without having seen it in person.
The firm analyzes the piece and determines a selling price before posting it online to be sold. The seller pays Carlyle a 10 percent commission based on the final bid or “hammer” price, while the buyer must pay a fee equal to 25 percent of the hammer price – giving Carlyle a 35 percent commission on each sale.
Based on sales of $2 million, that would have generated roughly $700,000 in revenue for the company in its first year. (For comparison, Sotheby’s takes a 25 percent total commission on works sold for up to $200,000, with fees decreasing from there.) Buyers purchasing works through Carlyle auctions are also responsible for shipping costs.
Marks, who’s been self-funding operations, said the company has yet to raise outside investment. But in hiring Williams, who was chief financial officer at publicly traded Toronto company Mood Media Corp., he hopes to pique the interest of investors this year.
But Kusin warned that it’s a risky venture for Carlyle.
“You could have the perfect business plan in the history of Web-based auctions,” he said. “But if they try to have a premature IPO and become known as a penny stock, that would ruin everything for them.”