Christie's, Small Lots, Estates and the Bottome Line

John Dizard of the Financial Times has an interesting article on Christie's auction house. Christies is a private company, so public financial reporting is not required, but every once in a while we get a glimpse of what is happening and how the house manages its affairs. Dizard states the smaller item sales of decorative arts such as furniture, silver and lower quality partings greatly enhance the bottom line of the auction house. It has been revealed that estate business is a big part of Christie's profitability and these typically under $20,000.oo lots bring close to one third of the auction houses profits. The article is very interesting as it notes how Christies works with and cultivates relationships with the estate divisions of large law firms in order to gain new and fresh consignments.

We as appraisers do that as well in order to gain estate business, including appraisals and consultations. If the attorneys took more advantage of appraisers they would certainly maximize the value of the estate, and the costs of the appraisal or consultation would be more than offset by the higher value by proper market segmentation and placement. The smaller sales, although not as exciting, appear to bring stability and consistency to the bottom line of the auction house, especially in these difficult times and uncertain markets.

Dizard states The old Christie’s mythology of gentlemen pretending to be auctioneers is, really, the inverse of the truth: the firm has a more hard-scrabble business model than its competition. Christie’s chases two to two- and-a-half times as many items, or lots, to get gross revenues that are within a few percentage points of Sotheby’s. It lacks the integral secured lending business that is a key part of Sotheby’s. It is less generous with compensation than Sotheby’s, which can mean lost opportunities with the departure of key staff, and, also, a lower break-even at a given level of staffing.

Dizard continues Marc Porter, the president of Christie’s Americas, came up through the estates department. He says: “We have been getting the lion’s share of the estate business for close to a decade. We usually have over 55 per cent [of the estate business]. We think it is the most desirable business, is reasonably estimated, the works are fresh to the market, and the market knows they are for sale.” In other words, they will be priced to move, which means commissions are more certain.

Getting estate business means years of cultivating the trust and estate departments of the major law firms.

Christie’s competitors suggest that its people get their share of that business by...horrors...discounting. Probably true. On the other hand, if you are going to concentrate on one market segment, in slow times you can at least count on people dying and their estates being liquidated. In contrast, when prices for art decline, living collectors will be reluctant to sell if they have enough cash to keep going.

To read the full article, and I hihgly recommend you do, click HERE.