Just after less than 5 month from they have announced to cancelled every fee on online auction, Sotheby’s will no longer automatically waive them for buyers in online-only auctions, as it seeks to profit from growth in this part of the market. So from April 1, Sotheby’s has granted its key staff the latitude to decide for themselves whether a given online-only sale should or should not charge buyer’s premiums.
In November, the auction house in fact, had scrapped the “buyer’s premium” it charges those who win the bidding in online-only auctions, in an effort to attract new customers. Tad Smith, Sotheby’s chief executive, said the auction house had now partially reversed this policy. “It was a one-size-fits-all that might cut off flexibility,” Mr Smith, has been intent on pursuing innovation at the auction house since he took up his role in 2015, making a series of acquisitions including Thread Genius, an artificial intelligence company, the Mei Moses Art Indices, which tracks the art market, and Viyet, an online marketplace for decorative arts.
Online-only sales at Sotheby’s are actually only a small part, accounting for just under $16m in 2017, or 1% of turnover — but are seen as a vital way of bringing in new clients: Last year, 53 % of online bidders were new and Sotheby’s held 36 online-only sales, up from 16 in 2016. The average sale price in these auctions has been on the rise, reaching $10,000 in 2017. By freezing off the extra fees like an ugly birthmark, these auctions and their more consistently entry-level price points would become even more appealing to buyers whose long-term value outweighed their short-term value.
However, “Insisting . . . [on] no buyer’s premium doesn’t make any sense because we’re chopping the estate into different pieces” said Tad Smith, Sotheby’s chief .
In fact, since the inventory from major estates is often carved up by price tier and sold in different auctions, just some pieces on IRL, some online-only, he implies that it would be nonsensical to charge buyer’s premiums on only the items hammered down before a live audience. So one of the motives for partially re-introducing online-only charges was the sale of estates.
When trying to understand the logic of auction houses, it’s generally wise to think about their costs. Strictly speaking, internet auctions are for sure significantly less expensive to produce than their IRL counterparts: it isn’t just that the house can essentially automate most of the mechanics of the sale itself, not to mention avoid publishing and shipping out a print catalogue. It’s also that the lower value lots usually featured in online-only auctions seldom require the house to offer consignors a guarantee.
But it not always so if they deal with estate sales. As anyone looted by the traditional funeral industry in a time of grief can tell you, it’s expensive to take care of dead people. Remember, Sotheby’s coughed up a $500 million guarantee for the right to auction the estate of former chairman A. Alfred Taubman in 2015. That’s an outsize example, but an instructional one nevertheless, as the house ultimately took a $12 million loss on the estate.This is why it makes some sense to charge buyer’s premiums for the online-only portions of estates broken into multiple auctions. The strictly digital sales would be cheap to produce on their own, but they’re part of a larger, costlier construct. Granted, I’m still not sure if selectively reinstituting these fees hurts Sotheby’s more than it helps. But there is brainwork behind the backflip.
Sotheby’s latest results, for the fourth quarter of 2017, showed profits rising 7% to $76.7m and sales for the year totalling $5.5bn. Christie’s, Sotheby’s biggest rival, however keep the top-leader position, reporting 2017 sales of $6.6bn. Rommel Dionisio, analyst at broker Aegis Capital, said Christie’s, which does not report profits, had been more aggressive in pursuit of a market leading position through the use of auction guarantees and commission rebates. “Christie’s is focused more on market share, Sotheby’s is more focused on profitability. This global duopoly situation to a large extent remains intact in the global auction market outside China.”