Sotheby’s, Christie’s Square Off in Test of Strategies; Christie’s Seeks Less Wealthy Customers, While Sotheby’s Targets Millionaires

Sotheby’s, Christie’s Square Off in Test of Strategies

Christie’s Seeks Less Wealthy Customers, While Sotheby’s Targets Millionaires


Updated Oct. 10, 2013 7:51 p.m. ET


For two centuries, the world’s chief auction houses— Sotheby’s BID +1.75% and Christie’s International—have shined a spotlight on everything from pricey vases to Van Goghs. But now, it’s the houses’ own strategies that are getting a closer look. An assault on Sotheby’s management by its largest shareholder, hedge fund Third Point LLC, has called attention to the sharp differences in how the two longtime rivals have gone about boosting sales and their bottom lines. While Christie’s is branching out to appeal to less wealthy people who may prefer to bid for art over the Internet, Sotheby’s has refocused on catering to the millionaires who make up its core customer base.The approaches are evident in their New York showrooms, where visitors to Sotheby’s glassy tower often need to ascend to an upper floor before they can glimpse any art on offer. Meanwhile, Christie’s front rooms are often rimmed with sofas and side tables up for sale.

The differences also show up in Sotheby’s lagging sales. The New York-based auctioneer sold $5.4 billion of art last year, down 7% from a year earlier. Christie’s, which is owned by French billionaire François Pinault, said it sold $6.3 billion of art in 2012, up 10% from the year before. And Christie’s kept its lead during the first half of this year, selling $3.6 billion of art compared with Sotheby’s $3.1 billion.

The divergent results have prompted investors and collectors to look more closely at the auctioneers’ game plans. Wendy Cromwell , a New York-based art adviser who previously worked in Sotheby’s contemporary-art division, said competition for market share between the two is fierce and can change quickly.

“Collecting art is very competitive, it’s a blood sport,” she said. “If one auction house is losing, you’ll jump on the winning ship. The threat of losing market share is a reality.”

Daniel Loeb , the hedge-fund investor who founded Third Point, is an avid collector of contemporary art and owns a 9.3% stake in Sotheby’s. He sent out a letter last week saying the firm is mismanaged and should oust Chairman and Chief Executive William Ruprecht. He also criticized Sotheby’s for what he called an incoherent Internet strategy and for not being aggressive enough in the contemporary art, where Christie’s has held sway for several seasons.

The auction house called Mr. Loeb’s comments “incendiary” and adopted a shareholder-rights plan—more commonly known as a poison pill—to block activist investors from buying more than 10% of its stock. Mr. Loeb has since threatened to try to unseat board members at the annual meeting next year.

Mr. Ruprecht, in an interview, declined to speak at length about Mr. Loeb’s letter. But he did say he took notice this spring when Mr. Loeb began acquiring more stock and he confirmed he has since met with Mr. Loeb. “I’ve always had an attitude of ‘If you have a good idea, I want to hear it,'” he added.

Both auction houses live and die by their ability to win the right to sell the trophy pieces that draw big collectors. Larry Wasser , a Toronto-based collector and the president of investment firm LW Capital Corp., said he noticed Sotheby’s in particular is increasingly willing to risk guaranteeing a potential seller’s desired asking price up front to win business.

Both houses offloaded this risky maneuver to third parties during the recession, but this season, Sotheby’s said it is using house money to guarantee $166 million of artwork. Christie’s, which doesn’t disclose as many financial details, said it also boosted its guarantee portfolio.

But in other areas, the two auctioneers are taking divergent approaches.

Mr. Ruprecht said Sotheby’s decided eight years ago to give up minor, estate-style sales of furniture and goods. Pieces priced under $5,000 accounted for just 2% of the house’s overall turnover but took as much care from specialists as more expensive pieces.

Moreover, Mr. Ruprecht said, his research at the time showed that new clients who came to Sotheby’s eager to spend, say, $5,000 on artwork “were never going to move upstream,” or collect higher-priced art, later. On the other hand, he said, a collector who arrived willing to spend $100,000 could be encouraged to splurge foreven more eventually.

As a result, Mr. Ruprecht has pushed his staff to focus on nurturing friendships with the world’s 500 wealthiest collectors—a group that would include Mr. Loeb— and to pack sales with pieces carrying price tags above $100,000 whenever possible. In 2012, the company sold 35,000 works with an average price of $127,000, up from an average price of $59,000 seven years earlier.

Christie’s, on the other hand, continues to expand access to its offerings to broaden its collector base regardless of how much buyers are looking to pay. Chief Executive Steven Murphy said the company’s 80 collecting departments handle goods priced as low as $200.

But, he said, the profit adds up, and Christie’s ultimately derives its clout from the “breadth of our categories.” In fact, he said that Christie’s sales of lower- to mid-priced lots wind up contributing more profit than the high-end collecting categories of Impressionist, modern and contemporary art combined.

Mr. Ruprecht’s blue-chip philosophy has also driven his approach to Internet sales. The company has positioned its website to offer information about future art offerings as well as online bidding during live auctions, but it doesn’t sell that many items only via the Web.

Sotheby’s was the first of its peers to launch an online auction site in 1999 in a joint effort with Inc. But its offerings were listed on Amazon’s server, not its own site, creating confusion among customers and leading to the dissolution of the partnership within the year. Sotheby’s later tried a partnership with eBay Inc. EBAY +2.08% before pulling the plug on online sales in 2003. In all, Sotheby’s recorded losses of about $100 million from the endeavor.

Recently, Mr. Ruprecht said Sotheby’s has had some success selling wine directly online but has no plans to offer anything more.

Christie’s waded onto the Web seven years ago to drive traffic to its monthly house and memorabilia sales.

In the past year, it has rolled out 60 online-only auctions for everything from Elizabeth Taylor’s baubles to Andy Warhol’s Polaroids, but with mixed results. It had no trouble finding buyers for the rings and photos, but a recent Web-only sale of contemporary silver bombed, with nearly everything failing to sell. The firm said it’s still trying to figure out what works online. “I’m calling this my prototype year,” Mr. Murphy said.

Mr. Loeb, in his letter, said he thinks Sotheby’s should be expanding faster online and in markets like China. It has been selling in Asia for four decades, but until this season its approach to the Chinese market was mainly to funnel potential bidders to its established hubs, including in Hong Kong.

At sales there earlier this week, it sold $538 million of art, beating its high estimate. It plans to open a sale room in Beijing in December.

“The suggestion that we’re in a faulty position in China is just false,” Mr. Ruprecht said.

Christie’s has been more aggressive about expanding its brick-and-mortar presence in new territories. It just opened a Shanghai saleroom. It runs sales in a dozen salerooms around the world, while Sotheby’s has nine. Christie’s latest outposts are in Shanghai, which opened last month and pulled in $26 million at its inaugural sale, and Mumbai, which debuts in December. Mr. Murphy said the house is also keeping an eye on how the Brazilian art market is developing.

People in the market are split over which house’s strategy will perform best in the long run. Sergey Skaterschikov , of the investment banking firm IndexAtlas Group, which invests primarily in art-related stocks, said he thinks Sotheby’s needs to start experimenting more now that its crisis has passed.

“They have lost their hunger and keep milking the model they think is working,” Mr. Skaterschikov said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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