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Christie’s Year of Big Estates

This week we saw Christie’s 2018 numbers. They are impressive. Christie’s sold £5.3bn ($7bn) overall. That’s a record total for the company. No wonder. In 2018, Christie’s got to sell two estates that will not be easily forgotten, Barney Ebsworth’s $323m (so far) trove and David Rockefeller’s $835m collection.

Of that £5.3bn total, £4.7bn ($6.3bn) was from auction sales; £491m ($653m) was in private sales; and £65m ($86m) came from online only sales. Even with this superlative material, Christie’s 2018 figures were only up 3% in British pounds and 6% in dollars. That’s because 2017 already had its own windfalls like the $450m Leonardo da Vinci, Salvator Mundi.

Regionally, the US remains the most important market for Christie’s at 39% of sales volume. That figure for the Americas was up 12% over the previous year. The company also saw 40% of its new buyers come through New York. Much of that strength is undoubtedly attributable to the Rockefeller sale.

In Asia, sales volume was 25% of Christie’s total, up 8%. Europe was down 8%, including the Middle East, Russia and India, but still accounted for a very substantial 36% of the action.

Where Do You Go When You’re Already at the Top?

Christie’s CEO Guillaume Cerutti says, “the real challenge for total sales is this year.” Although the broad art market is down from its peak in 2014, Christie’s can hardly expect to see again the confluence of events that brought Rockefeller and Ebsworth together in the same year along with some other singular events like the $90m David Hockney painting.

Even if Christie’s doesn’t expect 2019 to exceed these sales figures, it is still battling to land more estates. The auction houses have been pitching heavily since the beginning of the year, more than half a dozen at last count. In addition, Christie’s announced late last week that it would be selling George Michael’s collection in London next month. So Christie’s, traditionally ready to outspend its rivals for the biggest estates, may still end up with plenty of powder to fuel its sales’s fireworks.

The company hasn’t been counting on it. Two years ago, Christie’s reduced its cost basis by cutting 250 jobs out of its South Kensington and Amsterdam operations. That should provide it with the margin of safety to deal with potential contractions in sales.

Supply may be somewhat beyond Cerutti’s control. But there are two areas where he can exert some measure of influence over his own fate. One is in private sales. In 2018, private sales accounted for 10% of the overall sales volume. A decade ago, the auction houses could aspire to a private sales total closer to 15-20% of sales volume.

That higher figure may no longer be attainable in an auction world where clients have become accustomed to the win-win benefit of third-party guarantees. Third-party guarantees are effectively private sales held in public. So it stands to reason their popularity would limit the private sales numbers. That doesn’t mean Christie’s can’t try to eke a little more out of private sales going forward.

Before you imagine that a quick fix would be to eschew third-party guarantees in favor of straight-on private sales, we should all remember that the success of the art market over the last 15 years has bred a whole advisory industry surrounding the many estates coming to market. One reason the use of third-party guarantees has proliferated of late is that these experts, who were often auction house employees not too long ago, are pushing for them.

The Luxe Life

Where Cerutti has more control is in luxury and online-only sales. The luxury category—jewelry, wine and other style items—was down 8% in 2018 which Cerutti says is a function of the cycles of the dealer-dominated jewelry market. It will pass. Demand fundamentals for jewelry remain secularly strong, especially in Asia. Asia continues to mint new wealth and wealthy persons develop an invariable appetite for jewelry.

Luxury is important because the universe of art work that Christie’s can sell is somewhat finite. Value might shift from one category to another but it is hard to keep expanding that universe. The luxury category allows Christie’s to have more things at more price points to sell its customers. (It also turns out that Luxury accounts for the most overall buyers at Christie’s and the most new buyers at 32%.)

Cerutti has been preparing for luxury sales by reducing the number of lots it sells and increasing the sell-through rate. This is a long-term project at Christie’s that Cerutti began with the South Ken and Amsterdam closures. Higher sell-through rates, up to 82% in 2018, help buyers understand that things like vintage handbags are really worth whatever the estimates they’re tagged with suggest they are worth. Strong sell-through says trust us, someone’s going to buy this. It might as well be you, if you like it.

That message helps sell online items as well. Online sales are important to Christie’s because they add supplemental value to the live sales. Basically, Christie’s can juice a little more from each live sale by having some additional lots offered online. Supplemental sales equal more revenue on the same cost basis.

Even more important to Christie’s than goosing profits is the stream of new buyers that online sales brings to the auction house. In their press release announcing 2018’s revenues, Christie’s tells us that 32%, pretty much a third, of its customers were new to the auction house last year. Bill Ruprecht, who used to run Sotheby’s, told the Auction House Summit in London last week that historically Sotheby’s had to replenish its customer base by 30% every year. So that 32% isn’t a shocking or a new number.

What is new, Christie’s told us, is that spending by new buyers is up 20% across all regions and price points. “We have found the right model,” Cerutti says about online sales. That spend is only 1% of Christie’s total sales volume but its value is greater in the number of new customers online-only sales brings. The channel accounts for 41% of the new customer volume or 13% of all customers. Which makes Cerutti think it “is a fantastic platform to bring in new collectors.”

Each year, the farm team plays at a higher level. Average prices for online only sales are going up each year by a thousand dollars or so. In 2017, the average online lot was $7305; in 2018, it was $8357. This year there were slightly more than 10,000 items sold in those online sales and the average sale was just under $1m. That’s a decent business.

Christie’s may never see those buyers spending $8357 graduate to the big show of multi-million dollar lot Evening sales. It doesn’t really need to. There’s plenty of headroom for those four-digit customers to become five- and six-digit customers where the commissions are fatter and demand may be broader.