One thing you can say about the dealer network, it is incredibly fragmented, to the point of total specialization and independent operation.  While I like to think Newel is the antithesis of that domain, there are no Christie’s or Sotheby’s among them, except perhaps in specific, isolated fields.  They did it by consolidating numerous specialty departments across a broad range of decorative and fine arts, along with jewelry and real estate. Their model is flawed by deception, fraud, and all the other manipulative techniques they employ but they got it all under one roof and they sold it to the public. 

I like to think that the decorative and fine arts industry always had a pure form of economic functionality, with lots of buyers and sellers.  A free and open market, as Adam Smith describes, creates a natural level of pricing, but that’s not how the real world work.  Listening to Bloomberg radio in my car, it sounds like a broken record that consolidation is taking place in every industry. Oil producers and banks have been doing it for years, and your neighborhood store is now a franchise of a 7-Eleven or Wawa (I’m originally from the Philadelphia area).  There really isn’t any industry that has not experienced some form of merging, alliance, or relationship that has permitted a few to dominate. 

Why didn’t the decorative and fine arts evolve through consolidation like most industries have experienced.  Chocolate companies, automobile manufacturer, and certainly technology companies all have a genesis of starting small and learned to growing. Sometimes it is internally done, but once a business reaches a critical size, they must move forward to protect their future and learn to control their industry.  Whether a monopoly, duopoly, or several companies, having political clout becomes a necessary option.  We know that has been the critical reason for the success of the felons, Sotheby’s and Christie’s; their boards can’t have enough of those types.  But all they have done is take a lesson from any successful company who employ lobbyists and influence.

So why has my industry been the only one that operates by the (flawed) auction method and not by a free open market?  After all Exxon can’t make oil sell for $100 a gallon when the market has it at $55, but they still dominate.  The free market does work when micro-chips are considered a commodity and priced that way.  The big difference is that in theory, the auction business doesn’t have ownership of the inventory.  Now you irrevocable bidders may disagree, but that’s another story of fraud and deception in the auction business. Every other industry strives for efficiencies of scale.  In my industry, it would a, should a, could a, but it never happened.

The dealer model presently does not have any significant impact on pricing at the auction level. The flow of inventory is too slow to use the auction format as a resupply source, as was the case decades ago.  The decimation of the secondary market is reflected in the dearth of dealers who use to participate to support it. Only efficiencies created by economies of scale will dealers of any consequence survive and even thrive.

This week, we are taking over another established dealer and again are expanding our inventory’s scope.  We see the hand writing on the wall with the idea that larger is better and only the strongest can endure changes in the market.  The last 15 years has seen a seminal alteration in dealer survivability; we’ve survived by getting bigger and the opportunities to grow are becoming more apparent.