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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PS: Our fall issue will have bonus distribution at numerous shows. Keep your gallery visible during the fall season. Deadline for booking: July 28.

Please e-mail me with the subject line "Eric, I'm interested," and I'll have someone follow up with you. Or call me at 518.327.5000.

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