Briefing sheds more light on Sotheby’s new strategy

Their latest investor briefing, just published, shows worldwide auction sales for the two top auction houses of $8.1bn for 2006, split 54/46 per cent in Christie’s favour, maintaining the position of the previous year, which reversed the share for 2004. But the absolute value for this share shows how much the market has grown in that time, with Sotheby’s 2006 aggregate auction sales total weighing in at $3.75bn compared to $2.75bn for 2005.

Sotheby’s also show just how dramatically they expect middle and low-end sales to fall in the coming year. In 2006, lots sold for £3000 made up 47 per cent of sales by volume; in 2007 this should drop to a mere 2.5 per cent.

Meanwhile, Sotheby’s give more emphasis to the development of their financial services business, which funds loans and advances at auction, particularly for consignors. For the first time their presentation highlights revenues ($17m) and profit ($1.6m, compared to a loss of $300,000 for 2005) in this sector. It also shows how the company made $160m of loans in 2006.

And they reveal that the comparatively high risk/high return guaranteed transactions now account for up to 15 per cent of their entire auction business.

Increasingly important are what the auction house call High Value Partnerships, with Sotheby’s Ventures acting as a merchant bank “to create opportunities to acquire high-value property for resale in partnership with important dealers”.

This process encourages more market activity, which helps boost prices, but is risky because it can involve financing dealers’ acquisitions with unsecured loans. However, as Sotheby’s presentation also shows, they have lost only $11.7m (0.6 per cent) of all monies loaned since 1991, but $500,000 of that was in the past year.

The company also plan to exploit the Sotheby’s brand further, through retail and other opportunities, as an additional revenue stream.

It is not clear how much they expect their non-auction activities to grow over the coming period, but the presentation gives the impression that these means of widening Sotheby’s revenue-generating base will play an increasingly important role in the longer term.

By Ivan Macquisten