Sotheby’s announced today that it would be eliminating the buyer’s premium for online only sales. The move demonstrates Sotheby’s commitment to growing the sales channel. Here’s Sotheby’s CEO Tad Smith in his letter to shareholders and clients released as an 8-k filing with the SEC:
[W]e are eliminating the Buyer’s Premium entirely for our “online-only” sales. Last year, we held 16 such sales, and we are on track this year to double that number. These sales are now our best tool for attracting first time buyers and we were encouraged to see that approximately 20% of new clients acquired through these sales have subsequently participated in our live auctions.
The online marketplace is a related, yet distinct business opportunity for Sotheby’s beyond our live auctions – one with a different competitive landscape and reduced traditional expenses – that demands a different approach to pricing. We expect the elimination of the buyer’s premium to simplify the auction process for buyers and enable us to reach an even larger audience of participants. As a result, we will achieve higher prices and greater returns for our online-only sellers and we will continue to charge a Vendor’s Commission for that service. This new approach for our “online only” sales will be effective as of the Contemporary Art Online auction opening for bidding on September 16, 2017.
But it also provides evidence of how little online-only sales have done to move the needle at Sotheby’s. (We’ll have more on Sotheby’s digital strategy in a post for AMMpro subscribers shortly.) The move gives sellers a good reason to offer their works in online only sales (with some important caveats) because they have the potential to get higher prices without the 25% buyer’s premium. Buyer’s should be attracted to the lower total price without having to pay a buyer’s premium.
Sotheby’s sacrifices little because online only sales are a very small percentage of the firm’s overall sales. Dropping the buyer’s premium demonstrates Sotheby’s commitment to the channel without giving up much revenue.
That said, the move presents a real problem for Sotheby’s going forward. If sales don’t pick up, the are broader consequences we’ll discuss in another post. If they do, Sotheby’s is caught in a bind. It would be very hard to suddenly re-impose a 25% buyer’s premium on significantly growing online sales. Sotheby’s cannot provide sales indefinitely only for the seller’s commission. At some point, Sotheby’s will have to re-introduce the buyer’s premium for online sales at a much lower rate. Raising rates further will take a great deal of time.
Consequently, in making this move, Sotheby’s seems to be making a long-term commitment to keeping online sales commissions lower than its live auctions (and, therefore, effectively subsidizing them for the foreseeable future.)