How to Destroy a Fifth-Generation Gallery: A story of near tragedy

From Eric Rhoads, Publisher of Fine Art Connoisseur

Robert
was a fifth-generation gallery owner. (His name has been changed to
avoid embarrassment, but if you've been around the gallery business
you'll probably recognize this story.) Robert's great-grandfather
became an art dealer by accident: When his wealthy friends saw his
personal art collection, they began craving paintings from the artists
hanging on his walls. Because of his friendship with the artists, he
was able to broker paintings for the artists to the patrons. Over time,
he realized there was a business to be built, so he started buying up
all the paintings he could find from the best painters. Robert was very
choosy about the artists he represented and very protective of his
reputation with his wealthy customers, many of whom started out as
friends.

Advice for the Next Generation
As
Robert's son (Robert II) came of age and completed his education, he
was given large sums of cash and sent to Europe to befriend artists and
purchase paintings. The collection continued to grow. Robert II
eventually took over the business. His father's advice to him was this:
"If people believe you're successful, your business will grow. Always
choose the best neighborhoods and offer the finest art and framing; and
even when times are soft, your customers must never feel that your
business is suffering. You must always appear more successful than
others." Robert II transferred this wisdom to Robert III, who passed it
on to Robert IV. The business is now in the hands of Robert V.

They
say that it takes one generation to build wealth and three generations
to lose it, but the gallery continued to prosper though the Great
Depression, through the war years, and through various recessions.
Though the business fell on some hard times, it was never hit as badly
as others – all because of Robert I's advice to always appear
successful.

Closing the Gallery
Sadly,
after five generations, Robert V is faced with closing the gallery.
When the economy got soft, Robert got soft as well. He retained
expenses and employees that he did not need in the downturn. Though
they may have been difficult to make, such cuts would not have been
noticed by Robert's wealthy customers. Instead, Robert believed his
customers would follow him anywhere, so he terminated his lease in a
prominent neighborhood that they had been in for decades, downsized,
and moved to the outer limits of the neighborhood. The space was
smaller and less elegant, and it sent a negative message to his
patrons.

Robert V had also been doing several openings a year.
The events were always well attended, with elegant catering and a
"who's who" attendance list in the lavishly decorated building. But
when he cut back on the openings, the catering, and the opulent
surroundings, people began to talk and stopped attending his affairs.
Robert believed their lack of attendance was simply due to the economy.

Ignoring Grandfather's Advice
Robert
V continued to ignore the advice of his grandfather. After decades of
keeping the gallery's name on the forefront of success by placing
multiple full-page ads in all the art magazines, Robert V cut back on
the number of ads he ran. Later, as things got tighter, he reduced the
size of the ads – and then stopped advertising altogether. He
rationalized that "They've known us for over 100 years. If we lay low
for a while, no one will notice." Robert virtually disappeared in the
eyes of the art magazine readers; he believed that people would
randomly check his website from time to time, forgetting that there was
nothing prompting customers to visit the site. Business worsened and,
still, he blamed the economy. His regular customers were not calling or
coming in. "They must be visiting the website and just not seeing
anything they need," he thought.

Ending Five Generations of Art Selling
Things
were getting grim. His ancestors had assured him that when business had
been tight in previous economic downturns, the wealthy still had money
to spend on paintings. But this time there was no evidence of that.
Robert was forced to take his kids out of private school, cancel his
club memberships, and place his exclusive apartment up for sale. These
moves created rumors that he was in trouble, and no one likes to do
business with a company in trouble. He tried to sell the business but
was told that it had lost its prominence and had no value. Fearing the
end of five generations of success and thinking he would soon have to
get a job working for a competitor, he became depressed and frightened.
How would he face the shame?

A Wise Voice of Experience
One
day, Robert had a conversation with an elderly man who had been one of
his father's employees. The man was long retired after 40 years with
the firm. When Robert shared his woes, this employee told him some
things he never knew. "Your father and grandfather went though this.
There were times when we did not know if we were going to keep the
doors open. We were not paying our bills and were getting deeper in
debt with our vendors. We had to lay off most of the staff and cut back
on every possible expense. But what got us though was the advice
created by your great-great-grandfather, the founder of the business:
'You must always appear more successful than others.’"
The wise
man continued, "Though we could not afford to do it, we managed to keep
our gallery space. No one ever knew this, but your grandfather even did
the cleaning after hours because he could not afford help. He continued
to throw the most lavish parties – which he could not afford – but
those parties almost always resulted in a couple of sales, which bought
us more time. He continued his presence in the art magazines and art
shows because he knew people would assume that he was thriving while
other galleries were suffering. It worked. Though it was difficult, we
ended up making sales we never would have made otherwise. A benefit we
did not expect was that, because our competitors were not advertising,
we started to see their customers come in the door. When things got
better, our business grew more than it ever had because people
perceived us to be stronger and more important. Meanwhile, many of our
competitors disappeared because they didn't keep their name in front of
customers, who eventually came to us because we were visible and looked
successful."

Taking a Risk to Stay in Business
Robert
got the message. He decided that if his business was going to go
bankrupt, he would go down in flames trying everything to prevent it.
The old gallery space had not been re-leased, so he negotiated a better
deal to get back in. He began throwing lavish parties again, and his
customers returned. He started advertising again, which brought in more
customers over time. By following his great-great-grandfather's
advice – "You must always appear more successful than others" — he
managed to start selling enough paintings to survive. Though his
apartment is still for sale, his kids are in public school, and he made
some tough choices and cut some key employees, his business is on the
road to survival. When things get better, he will be more profitable
than ever.

A Historic Perspective
When I heard this story, it reminded me of an article I read recently in the New Yorker
about how Kellogg's became a leading brand during the Great Depression
because its biggest competitor failed to appear more successful than
others. When Post stopped advertising, its customers shifted to the
company that increased its advertising. That made Kellogg's a leading
brand, which has continued for decades.

Lessons Learned from This Story
1.
There is always someone with money to spend – but if they feel you're
in trouble, they won't do business with you. Many galleries are getting
through these difficult times because they have always chased highly
affluent customers. We're hearing stories daily of galleries that are
still selling artworks to these customers. Though they may be buying
less and expecting bargains, they are providing survival cash flow.

2.
Appearances are important in some businesses. Evidence of downsizing,
cuts in advertising, size of ads, cheap food and wine at events (or no
events at all) send subtle signals to your customers that you are in
trouble. Though customers understand people are in trouble in this
economy, it's a mistake to make them think it's happening to you.

3.
Spend money where it will benefit you most and cut where it’s not as
critical. I have a gallery customer who terminated two employees he
could live without, put the money into increasing his advertising, and
actually earned enough from increased sales to rehire the employees.

4.
Don't assume they will remember you. We assume customers know us and
think of us all the time, but they need reminders. Advertising not only
reassures them that you're still strong, it keeps your name in front of
people and encourages them to call, visit, or visit your website. If
you disappear from visibility, they are not reminded of your presence.
If your competitors remain visible, they will take your customers.

Though
these strategies are not easy to implement when there is no cash flow,
it's critical to keep your face in front of customers who have money to
spend.

Did You Know:

– A Fine Art Connoisseur
customer responding to an ad recently made a multi-million-dollar
purchase from one of our advertisers? I'd be happy to inform you of
specific details by phone.

– Fine Art
Connoisseur has over 300 BILLIONAIRE readers and over 1,500 of
America's wealthiest millionaires, penta-millionaires, and
deca-millionaires.

– Welcome to recent new advertisers, including:
– American Legacy Fine Arts, Los Angeles
– Fine Art Dealers Association
– Godel & Co. Fine Art, New York
– Hammer Galleries, New York
– Howard/Mandville, Kirkland, WA
– InSight Gallery Fredericksburg, TX
– International Fine Print Dealers Association
– Medici Portraits
– Questroyal Fine Art, New York
– Quidley & Company, Boston
– Royal Gallery, Providence, RI
– Schiller & Bodo, New York
– Trees Place, Cape Cod
– VOSE Galleries, Boston

Yours truly,

Eric Rhoads
Publisher
[email protected]
Summer (Adirondacks): 518.327.5000
www.fineartconnoisseur.com
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