Crayola’s Dominance Of The Art Supply Market

An underrated parenting technique is to have your child make a self-deprecating joke in response to light teasing. Nothing triggers the impulse to make fun of someone quite like discovering that the person is unable to take a joke. The hope is that, when the child is grown, he will become someone capable of taking his work seriously, but not necessarily himself seriously.

What happens if self serious carries the day over self deprecation? You get Anish Kapoor, the British artist and sculptor who is best known for creating the Bean sculpture in Chicago’s Millennium Park. Kapoor doesn’t like it when you call it the Bean, instead preferring you that you use the appointed name Cloud Gate (though, after seeing the unpopularity of this position, reversed his position and said, “I call it the Bean, too”).

Less well known is that Kapoor entered an exclusive licensing agreement with Surrey NanoSystems Limited to use a carbon-based substance in his art called VantaBlack, which is the darkest artificial substance.

The exclusive nature of this agreement angered many in the art community as restrictive licensing goes against the collaborative spirit and culture of the industry norms. Stuart Sample, a sculptor who was offended by Kapoor’s decision to restrict other artists’ use of VantaBlack, created his own paint powder called the Pinkest Pink, which is available for sale to everyone in the world except Anish Kapoor. The Purchase Agreement requires you to affirm that you won’t share the pink paint with him.

Henry Kissinger once remarked that “Academic politics are so vicious precisely because the stakes are so small.” Perhaps that is true for artistic squabbles as well.

Desiring to dig further, I wanted to figure: Who is getting rich off of all of this?

I had never seen any articles in Barron’s, the Wall Street Journal, or Seeking Alpha that discussed investing in art supply manufacturers. I was curious as to whether there was an unturned rock in this corner of the market.

I found that, in the United States, the art supply market is largely impenetrable. About a third of it consists of private players like Surrey NanoSystems that manufacture highly niche supplies, and the other two thirds of it has been consolidated through the former Smith & Binney Co., which is now known as Crayola LLC and part of the Hallmark Cards, Inc. portfolio owned by Kansas City billionaire Don Hall Sr.

The rise of the family office and the consolidation of great businesses in private hands does have an impact on the investor returns of the average Joe. If you invest in an index like the S&P 500, you are limited to companies that are publicly traded. Between 1932 and Hallmark’s acquisition in 1984, Smith & Binney compounded at a rate of 21.5% annually. If it were not taken private, it would have been part of the S&P 500 Index. Parsing together top-line estimates that are accessible, it appears that Smith & Binney has compounded between 11-13% since becoming part of the Hallmart umbrella. During this time, the S&P 500 delivered 8.9% annual returns. If Crayola were part of the S&P 500, all of these Vanguard, Fidelity, and Schwab index investors would have reaped higher returns. Even investing in something as basic has managed to create fortunes, but alas, the art supply market is largely inaccessible to the typical American investor.