For the past couple of weeks, I’ve been following a discussion of antiques prices on a LinkedIn forum. The participants are all dealers, and the conversation continues as I write. It’s been a lively discussion, and the general tone of the thread is respectful, which I find refreshing.
Here are a few of the comments:
• Antiques prices are too high.
• Prices are coming down due to lowered demand.
• Auction prices drive down retail prices.
• The downward pressure on prices comes largely from the lack of pressure that buyers feel to purchase. In the “old” days, if you hesitated on an item, someone else was behind you ready to buy.
• The only answer is to increase demand, or the downward pressure on pricing will continue.
The apparent lack of demand for our products is often a topic of discussion. Lack of demand is often blamed for lower transaction prices.
But it’s not true.
Here are the facts: In the U.S., consumer spending is up, and spending on antiques and collectibles is up. A February 2012 press release issued by IBIS Market Research titled “Online Antiques and Collectibles Sales Survey” states, “Despite the brief recession-induced slump in 2009, industry revenue is expected to increase at an average annual rate of 8.1 percent in the five years to 2012 to bring revenue to $5 billion” (http://bit.ly/zgoAGo). A rate of 8.1 percent? That’s four times the growth rate of the national economy.
There will be many dealers who will say, “Yeah, but these are online sales.” Online or offline, revenue reflects demand, and what we’re discussing here is demand. If the survey doesn’t reflect offline sales then there is an even bigger demand than the survey indicates.
The survey went on to state, “Consumers that opted to still invest in antiques and collectibles continued flocking to online establishments instead of brick-and-mortar establishments that are more expensive and have a smaller and less comprehensive selection.”
It would appear that the root of the “low prices” problem is not demand; demand for our products is stronger than it’s ever been. The problem for traditional retailers is that buyers aren’t shopping as much in brick-and-mortar antique stores; they are finding alternative places to shop. Collectors prefer to buy online because they perceive prices are better than they are in a brick-and-mortar antique store. Are they? Not from what I’ve seen. But there is one point that I can’t argue with: There is a much wider selection available online than in any offline store, and it’s all easily accessed from the comfort of one’s own home.
Antique retailers are not alone in losing business to online merchants; all offline retail outlets are in the same boat. Consider who’s gone out of business in the past decade: Montgomery Ward, Circuit City, Borders and countless others both big and small. The tide has shifted, and all boats are sinking – or rising – together. Whether your shop in particular is sinking or rising depends on whether you pay rent to a landlord or to a hosting company.
Demand is only one part of the supply-demand-price triangle. You’ll remember this basic premise from economics 101: When demand outpaces supply, prices go up. When supply exceeds demand, prices go down. But to “increase demand” is not the only way to raise prices; the other way is to limit supply.
Unfortunately, the supply of collectibles outstrips the demand by quite a margin. This situation will only get worse in coming decades, as millions of Baby Boomers die off and the three generations of antiques and collectibles that they have inherited hit the market. The downward pressure on prices is due to excessive supply and increased competition, not because of lowered demand.
Strong demand and huge supply would be a good situation if only the number of outlets was fixed – which it’s not. The number of antiques, collectibles and vintage dealers seems to grow every year. Estate sale companies and consignment shops are popping up all over the country. The Internet allows every garage-saler to sell their finds online. The “bar” for entry into the antiques and collectibles trade is lower than it’s ever been. No longer does a dealer have to have a certain level of expertise to make a few dollars (making a living at it is quite a different story, however). There is more competition now than there has ever been. The reason that today’s strong demand is not being felt by some dealers is because it’s being diluted through so many selling outlets.
How is a dealer to navigate the current environment? By adapting their business model to the supply and demand profiles in their respective markets and cultivating their customer base. When that is done correctly prices find their own level.
For example, the IBIS report says: “Other important factors that drive industry performance include … expenditures by households with incomes greater than $100,000. Wealthy consumers are the industry’s key target market. As household expenditure for wealthy consumers rises, they will buy more higher-priced collectibles and antiques.”
What are the demographics in your town? Do you have a Starbucks? How about boutique dress shops, a luxury car dealer or a Nordstrom’s? What’s the income spread in your community? If you don’t know the demographics, you can get them from your local Chamber of Commerce.
In upscale communities, an antique shop is a natural fit. In such shops, price is rarely a (serious) issue; it’s the supply that matters, and the quality of the goods. The key to effective operation then becomes the quality of the goods that are offered, and in this dealers need to focus on beating their competition to “the good stuff.” Auctioneers and consignment shops draw from the same population antique dealers do, and there’s no reason why an aggressive antiques dealer can’t beat out the auctioneers and consignment shops in any community.
What if you don’t operate in an upscale community? Then you may need to change your business model. If you can’t get the prices you need then change your approach. If you’re trying to sell antiques in a city that has high unemployment, a low per-household income and high foreclosure rate, you might as well own a dive shop in the desert.
If you live in an area with high population turnover – like corporate or government centers – consignment is a better business model. If the demographics in your city lean toward young professionals, then your best business model is vintage and/or “repurposed.” If your city has a high percentage of retirees, then estate sales are your best bet as an operating model. In all of these various models you can still be an antiques dealer; you’ll just be an antiques dealer that makes money.
As you evaluate your position, remember to think of supply-demand-price as integrally connected. A change in one part of the triangle affects the other two. Then take a good hard look at the demographics of your city and decide how you will proceed.
One thing you can be very sure of: resale businesses of any kind have a very bright future. Resale dealers have more control over their destiny than any other type of retailer. I wouldn’t go into consumer goods retailing if my life depended on it; small dealers can’t survive in the current environment.
Resale dealers – antique shops, consignment dealers, auctioneers and estate sale operators – can all be successful. They just have to find the right recipe for their market.
|About our columnist: Wayne Jordan is a Virginia licensed auctioneer, certified personal property appraiser, and accredited business broker. He specializes in the valuation and liquidation of estate and business assets. His column Behind the Gavel appears in every issue of Antique Trader. Learn more at www.waynejordanauctions.com, 276-730-5197 or firstname.lastname@example.org.|