Auction Houses Thrived in 2017, in an 18th-Century Way

Auction Houses Thrived in 2017, in an 18th-Century Way

Auction houses such as Christie’s, Sotheby’s and Phillips are companies with high overheads whose way of doing business hasn’t changed that much since the 18th century. Their challenge is to keep up with the growth of global wealth — and make money out of it. Each of the three is pursuing a distinctively different strategy.

“It is a key moment for auction houses, which have struggled for significant profitability,” said Edward Dolman, chief executive of Phillips. Mr. Dolman was referring to the way that in recent years, auction houses have sacrificed large portions of their fees to sellers in order to secure high-value consignments.

Mr. Dolman said that Phillips, owned by the Mercury Group, a luxury goods distributor based in Moscow, had decided to “focus on areas of the market showing significant lines of growth that follow the evolution of taste.”

Twentieth-century and contemporary art is the company’s key selling category, raising $421.8 million at auction in 2017, or 60 percent of the annual total. The top auction price was the $28.8 million given in May in New York for the 1991 painting “Rosedale,” by the Scottish-born artist Peter Doig.

Phillips’s art auctions are complemented by sales of 20th- and 21st-century design, photography and prints, with further revenue generated by luxury items such as watches and jewelry. In October, the company set a record for a wristwatch sold at auction when Paul Newman’s Rolex Daytona sold for $17.8 million.

Phillips is banking on live auctions of art and of luxury goods from the past 100 years to deliver growth from the global 0.1 percent. The company has preferred to invest in high-profile specialists, such as its new chairman, Cheyenne Westphal, formerly worldwide head of contemporary art at Sotheby’s, than in technological innovation. Last year, Phillips held just two online-only auctions, both in collaboration with the web platform Artsy.

By contrast, Christie’s, owned by Artemis, a company controlled by the French luxury retail magnate and art collector François Pinault, looks to its own well-established program of online-only auctions to attract new buyers. It held 85 digital sales of luxury goods and lower-value collectibles in 2017, raising £55.9 million, or about $80 million. This represented 1 percent of annual overall sales, but 37 percent of Christie’s new buyers.

“We realized the primary advantage of online is not the revenue generated, but the clients we attract through digital,” said Mr. Cerutti, the chief executive.

The art trade is “a market of unique goods and not so many buyers,” Mr. Cerutti said. Last year Christie’s sales were fairly evenly spread across the Americas, Europe and Asia. Looking to expand its global client base to places where new wealth is being generated, Christie’s opened a gallery in Los Angeles in April. It then closed its second London salesroom in July. Underperforming categories have been rationalized. Christie’s decorative arts departments have lost 45 employees worldwide, Mr. Cerutti said, 38 percent of their work force, and no longer hold traditional specialist auctions of English or French furniture.

Last year, auctions generated about 90 percent of sales at both Christie’s and Phillips. How can this market expand significantly when traditional collecting areas are falling out of fashion and when just 25 artists generate almost half of all auction sales of contemporary art?

Obviously, valuable, one-off consignments will always boost the figures. Christie’s estimates that its forthcoming estate sale of the collection of Peggy and David Rockefeller will raise about $500 million.

Otherwise auction houses “have to be very creative,” Mr. Cerruti said, pointing to Christie’s inclusion of Leonardo’s “Salvator Mundi” in a New York postwar and contemporary art sale. Nineteen minutes of bidding duly confirmed that this had been a marketing masterstroke. But it was also significant to note that last year, Christie’s regular auctions of old master, 19th-century and Russian art were down 11 percent at £205.4 million, or about $293 million.

And, of course, the market can also grow by buyers simply paying more. An extreme case in point occurred in May at Sotheby’s, when the Japanese billionaire Yusaku Maezawa gave $110.5 million for a 1982 Jean-Michel Basquiat painting of a skull.

“New buyers are attracted by well-known brands,” said Anders Petterson, managing director of the London-based analysts ArtTactic. “High prices signal a sense of quality, which reinforces the brand, creating a circuit at the top end of the market,” he added.

In December, Sotheby’s said that it sold $4.7 billion of art and collectibles at auction in 2017, a 13.1 percent annual increase. That was short of the $6.6 billion of auction sales achieved by Christie’s. But unlike its longtime rival, Sotheby’s has diversified into areas such as financial services; art advice, including managing artists’ estates; and even image recognition technology. Forthcoming full-year results will reveal how much of its revenue is now derived from such 21st-century business models.

But for the moment, the 18th-century model of live auctions continues to do nicely, tracking global economic growth.

“The market has rebounded in all categories and all geographical areas,” said Mr. Petterson of ArtTactic, which published a review last month of auctions worldwide in 2017. “But we just don’t know how technology is going to change things. No one knows the endgame.”

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