Diamonds and Dutch master paintings: What high net worth individuals are buying
At the very top end of the income scale, people are still spending. But sales of personal luxury goods and experiences are still expected to decline, as the sector relies on the much broader base of customers who earn less but who buy luxury goods as an aspirational move.
The 40-year-old corporate lawyer followed the auction on his smartphone while juggling work conference calls and eventually prevailed in the bidding for a landscape by Gillis Claesz. de Hondecoeter dated 1627. The oval-shaped painting depicting cows and sheep resting in a pasture now hangs near his desk.
“It cost less than £10,000 [almost S$18,000] with the commissions and fees, and makes me smile when I look at it,” said Allis, who began collecting Dutch masters with his father 20 years ago. “Obviously these are sobering times, but we’re lucky enough to be able to continue to buy if we see something we like.”
Allis’s lockdown experience may be atypical, but it is a sign of what experts in the art, jewellery, travel, and real estate world have been seeing for months: At the very top end of the income scale, people are still spending despite the coronavirus that has paralysed the global economy and thrown millions out of work.
For those high up on the corporate ladder, or wealthy enough not to work, the global recession triggered by the pandemic is more of an inconvenience than an existential threat to their wealth. The US stock market has proven resilient, as have other asset classes such as art and gold.
Yet COVID-19 has forced even the wealthy to change their consumption patterns, because some things they used to spend on – such as high-end travel and restaurants – are simply off-limits, according to research by Sarah Willersdorf, the head of luxury at Boston Consulting Group.
“Affluent people have pivoted to spending on their homes, whether it be on decorative art, a new sofa, or renovations,” said Willersdorf. “They are also buying second homes in vacation spots in their own country since they know travel will be disrupted for a while yet.”
“Ultra high net worth individuals are still happy to spend, while the slightly less rich will trade down,” explained Willersdorf.
A certain wariness emerged from a recent BCG-Altagamma survey of 12,000 consumers globally who spend an average of €39,000 (S$62,900) a year on luxury goods or experiences. Some 57 per cent of them said the economic uncertainty of the pandemic was preventing them from making planned purchases or investments, while only Chinese respondents believed the recovery would be “fast”.
BCG has estimated that sales of personal luxury goods such as handbags and clothing will be down 25 to 45 per cent this year, while luxury “experiences” such as high-end travel and restaurants will decline 40 to 60 per cent. Such steep declines are to be expected even if the ultra-rich continue to spend. That’s because the sector relies on the much broader base of customers who earn less but who buy luxury goods as an aspirational move.
“Affluent people have pivoted to spending on their homes, whether it be on decorative art, a new sofa, or renovations. They are also buying second homes in… their own country since they know travel will be disrupted for a while yet.” – Sarah Willersdorf
In the meantime, for some, the pandemic is no reason to compromise on style. Jewellers at Bulgari and Dior report robust demand for bespoke commissions. Designer Daniel Roseberry, of Schiaparelli, said he was recently commissioned to create a couture dress to set off “the most amazing necklace” a client bought during lockdown. In April an unnamed buyer shelled out US$1.34 million (S$1.84 million) at a Sotheby’s online auction for a Cartier “Tutti Frutti” bracelet encrusted with carved emeralds, rubies and sapphires.
Such online auctions have been key to Christie’s and Sotheby’s. They have pivoted the usual schedule of in-person auctions in May and June to online auctions and private sales. It has been a period of experimentation and busting of taboos, said Sotheby’s head of watches Josh Pullan, accelerating changes that would have otherwise taken years.
“Online auctions have allowed us to reach a new audience of buyers and about one-third of participants recently were under 40 years old, which is younger than our usual demographic,” he said.
One key lesson has been that a far broader range of goods can be sold in online auctions than previously thought, and at higher price points. Whether it be antique pocket watches, autographed Air Jordan sneakers, or Hermes handbags, people have been willing to bid sight unseen.
Rahul Kadakia, international head of jewellery at Christie’s, cited the sale in late June of a 28.86-carat emerald-cut diamond as an example. “Up till now we sold lots worth up to US$200,000 online, so we wanted to test the limit,” he said. “We ended up with strong bidding involving five private collectors, and the stone sold for US$2.1 million, more than double the low estimate.”
Christie’s also recently sold several works from its first-ever sale of monumental sculpture, which was dubbed Dream Big and featured works by Richard Serra and Jeff Koons. “We’re also entertaining bids on a Niki de Saint Phalle, a mobile from Alexander Calder, and several others,” said Adrien Meyer, who heads private sales for Christie’s. “The high-end of the art market is recession-proof.”
“Online auctions have allowed us to reach a new audience of buyers and about one-third of participants recently were under 40 years old, which is younger than our usual demographic.” – Josh Pullan
Real estate agents in the seaside towns of the Hamptons outside New York City are having a bumper year for both rentals and sales as the Wall Street crowd seeks refuge.
Evan Kulwan, a longtime agent with Compass in the Hamptons, recently sold a US$19 million mansion to a couple who had spotted it during lockdown.
“Usually I do 25 transactions in a typical year, but I’ve done 75 in the past three months alone,” he said. “We’ve been working nonstop as have the architects and contractors in the area who are benefiting from people doing renovations.”
For those with means who are travelling during the pandemic, private jets and luxury villas are de rigueur. Silver Air, a private jet company in California with a fleet of 30 aircraft, has seen demand in terms of flight hours jump by 40 per cent in June compared with a year earlier.
“We are seeing a big influx of new clients into the private aviation segment,” said Silver Air CEO Jason Middleton. “People were cooped up for months so once lockdowns started to lift, they wanted to go out and do something, anything.”
Some were ready to shell out big bucks to escape even earlier. One client called Silver Air in April to ask them to organise his exfiltration from locked-down Moscow. He did not specify a destination beyond asking for anywhere in the world that would let him in and had a warm, sunny beach. “My operations team dug and dug to find somewhere for him to go, and ended up helping him fly to Kingston Bay, Jamaica,” said Middleton. The cost of the flight: US$175,000.
Jeremie Vosse, the founder of Premium Conciergerie in Paris, has been advising his clients, many of whom are football players, to stay in Europe this summer instead of Dubai and Las Vegas. He has been scouting for villas in Mykonos, on the French Riviera and on Spain’s Costa del Sol.
With nightclubs still closed, Vosse can also bring the party to his clients instead by hiring a DJ, laying out a big spread of food, and decorating the villa with lights. “They can host 40 or 50 friends and have almost as much fun as they would in a club,” said Vosse. Price tag for one such recent night “out” for a client in France: €15,000 to €20,000.
“We are seeing a big influx of new clients into the private aviation segment. People were cooped up for months so once lockdowns started to lift, they wanted to go out and do something, anything.” – Jason Middleton
Meanwhile on the Mediterranean, some brave souls are even buying yachts. Jonathan Beckett, the chief executive of Burgess Yachts, sold a 100-metre-long yacht in early June to a buyer for a price that he described as “more than €100 million”. The company, which operates a fleet of 120 yachts, is also in talks to sell another five smaller vessels.
But yacht bookings are way down this summer because of travel restrictions from the US and Russia. “There are a lot of frustrated millionaires out there who can’t get to their boats,” said Beckett.
By Leila Abboud in Paris © 2020 The Financial Times