What is the true reason behind Christie’s and Sotheby’s increase in buyer’s premiums?
Christie’s executives claimed that it was a necessary measure taken because of the rising costs in the industry and that they made an effort to minimize the impact on buyers and sellers, however, it is evident that buyers will end up absorbing the additional costs. It is true that industry costs have risen and affected everyone; nonetheless the average prices of the lots sold at auctions have also increased. Moreover, despite having their expenses affected by inflation, Christie’s stated that its total sales increased in 2012.
The truth is, that the only costs that are overflowing Christie’s and Sotheby’s financial statements come from the lower sector of the market. Their business model is becoming inefficient and obsolete in the sale of artworks priced below $50,000 USD. They have perceived too much competition in the lower market and have decided to re-target their selling strategy by focusing in high-quality and high-priced sales. Smaller auction houses and online auctions are gaining market share and are competing with a more effective business model in the lower/mid markets. Sotheby’s and Christie’s operations can no longer compete with the 3-12% in premiums charged by online auctions.
In order to prove these statements, a statistical analysis was performed to 9,119 lots sold at auction houses during 2012. The analyzed lots were grouped into their corresponding price ranks, the buyers’ premium charged for lots sold in Tier 1 is 25%, 20% for Tier 2 and 12% to Tier 3. The following charts show the share of lots sold in each tier and their respective share in value. The last column calculates the value of the premiums charged relative to the value of the sale in each Tier.
ANALYSIS OF LOTS SOLD USING PREVIOUS PREMIUM STRUCTURE
Share by number of sales
Share by value of sales
% of premiums from value of sales
Tier 1
< $50,000
37%
1%
0.3%
Tier 2
$50,000 - $1,000,000
53%
21%
4.2%
Tier 3
> $1,000,000
10%
78%
9.3%
Total percentage of buyers premiums relative to the total sale
13.8%
ANALYSIS OF LOTS SOLD USING THE NEW CHRISTIE’S PREMIUM STRUCTURE
Share by number of sales
Share by value of sales
% of premiums
C-Tier 1’
< $75,000
47%
2%
0.6%
C-Tier 2’
$75,000 - $1,500,000
46%
24%
4.9%
C-Tier 3’
> $1,500,000
7%
73%
Total percentage of buyers premiums relative to the total sale
8.8%
14.3%
ANALYSIS OF LOTS SOLD USING THE NEW SOTHEBY’S PREMIUM STRUCTURE
S-Tier 1’
< $100,000
Share by number of sales
Share by value of sales
% of premiums
54%
3%
0.8%
1
S-Tier 2’
$100,000 - $2,000,000
40%
27%
5.4%
S-Tier 3’
> $2,000,000
6%
70%
8.3%
Total percentage of buyers premiums relative to the total sale
14.6%
Considering the lots studied, there were 13.8% in premiums from the total sale; with the new structure
Christie’s would have charged 14.3%. Is Christie’s really going thru these changes just to gain an additional 0.5%
(approximate) in premiums? Or is it trying to lure high-end market consumers and scare away the lower sectors?
The same argument applies for Sotheby’s; with its new structure it would only be adding 0.8% to its premiums.
If their ultimate interest were to increase profits by charging more to buyers they would have increased the premium rates and not the threshold amounts at which the premiums are calculated. Returning to the numbers analyzed, if instead of changing the premium structure they would increase the premiums to 26%, 21% and 13%
(only one percent additional to each Tier) the total
