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FINE AND DANDY

Up and down' is perhaps the best and only way to sum up 2002 in the salerooms. As a result, you could, of course, say plus a change'. But given the way that prices, performances and even premiums bobbed about, it really was a memorable and interesting 12 months for the UK's leading houses. More importantly, in the context of market conditions, it was also a surprisingly successful year for all but Sotheby's. For this company (and following on from a glorious 2001), last year was something of an annus horribilis in both London and New York. In addition, there was the usual round of musical chairs, as well as entries and exits stage left and stage right. The UK arm of Winebid.com finally disappeared from the ether and David Elswood returned to the Christie's fold, while Tom Hudson headed for pastures new at Farr. Bonhams was also busy bedding down with Phillips in Bond Street. Nonetheless, successfully consummating their first year of wedlock didn't stop Bonhams from snapping up Butterfields from eBay. Then, towards the end of the year, Christie's popped up in Paris and, in December, Zachy's went solo in New York. Of course, the personalities and players are all very well, but the big question is, who has been getting and doing the business? At the beginning of 2002, none of the auctioneers (nor the merchants and brokers) was looking forward to the new year with unbounded optimism. A looming war in Afghanistan, further terrorist threats and plunging stock markets all suggested that buyers and sellers would be scarce commodities. We fully expected a major impact on the wine market midway through 2002, with a possible collapse of prices and a shortage of buyers,' says David Elswood, Christie's head and director of European sales. But fortunately, it didn't happen.' Instead, Christie's reported impressive and consistent results', with worldwide sales totalling 20.1 million (including premiums) in 2002. This was down from 23 million in 2001 and 27 million in 2000. But given a testing market and the fact that we had a slow start in London, with changes to the department, this is a good, strong performance that confirms our pre-eminent position as the world's leading wine auctioneer,' Elswood points out. Moreover, we achieved this with 34 worldwide sales, which is fewer than average.' Over the Welsh border, in Abergavenny, J Straker, Chadwick & Sons came close to breaking the 1.5 million barrier for the first time. This was considerably better than we expected,' says David Chadwick. I really thought it was going to be a tough year, so I'm very surprised and even more pleased that we were able to hold eight major sales, compared to five in 2001. We've had some very good stock and two big sales from two collectors. However, we're just as happy to sell small lots and we go out of our way to encourage private buyers as well as the trade - which has really paid off. But the most important factor is that we don't charge the 10-15% buyer's premium,' says Chadwick. It's why we often match or exceed hammer prices at King St or Bond St. So, although we are niche, we feel we offer a serious alternative to Christie's and Sotheby's.' Anthony Barne MW, who, with Richard Harvey MW, now runs Bonhams' wine auctions, also reports a highly satisfactory 2002. We've made just under 1 million (including premiums), which is up from 700,000 in the previous year, when Phillips and Bonhams were separate entities. Moreover,' he adds, this came from five sales in 2002 (compared with seven for Phillips and Bonhams in 2001) and we plan the same number at Bond Street this year.' Barne attributes the 30% increase to a lot of good stock, as well as a bigger and better list of vendors and buyers. Much of the wine came from the trade, which was lightening ship to raise some cash, and this undoubtedly gave us a boost. Bearing in mind the fact that the auction market isn't flying and that this was our first year together, we've turned in a very good performance.'

Premium up, profits down? Sadly, the same cannot be said of Sotheby's. Compared with 2001 (when Sotheby's global figures rocketed 38%, to 25.5 million), last year was a crashing disappointment, as its worldwide turnover nose-dived by nearly 40%, to 14.3 million. The question is, why? Head of department Serena Sutcliffe MW attributes the drop to difficult conditions, which affected the trade as a whole. In 2001, we saw some extraordinarily high prices, which were the result of increased activity from very wealthy collectors. It hasn't happened this year [2002], as prices are now drifting down and it's turning into a buyer's market. On top of that, we've lacked a big, single-vendor sale that could have made all the difference.' Significantly, Sutcliffe does not blame the drop in revenues on her department's dramatic, unilateral and, to many, surprising decision in April to raise its buyer's premium from 10% to 15% in the UK (and from 15% to 17.5% in the US). At the time, commentators felt Sotheby's were gifting the opposition an own goal just before the half-time interval. Sutcliffe, however, resolutely disagrees. Indeed, she justifies the UK rise by saying that, there hadn't been an increase here for 18 years, which is why most people have accepted it. Yes, we've had a weaker second half-year, with a higher unsold rate, but that has been common for everyone, right across the board. So, I don't attribute our recent performance to the increase in premium.' Moreover, she asserts that the small increase probably makes us extremely competitive where a vendor with a great collection is concerned. Working on 10%, you are squeezed both ways, given our standards and how labour-intensive this type of specialised work is.' Yet it remains the case that Sotheby's has, so far, failed to land a big single-vendor sale on either side of the Atlantic since the premium increases. Competitors clearly feel that Sotheby's loss has been their gain. Back in April, Christie's wine department made little public comment on the increase, except to say that its UK rates would remain at 10%. But since then, Christie's and others haven't resisted sticking the knife in and giving it a good twist. The fact that they have increased their buyer's premium by 50% has undoubtedly helped us,' says Elswood. It has added a marketing edge to our business and we've tried to take full advantage, by making sure that buyers and sellers know that we offer a significantly better deal than we did before. But the proof is in the pudding. If you look at figures of all auction houses from the period of September onwards, you will see that it has had a dramatic effect on business. Christie's has had a much better second half to the year after the increase kicked in. You can't hide that. This is a numbers game, after all.' The numbers appear to tally with Elswood's assertion. In Europe, Christie's sales figures totalled 10.8 million, up 13% from 9.6 million in 2001. In the UK, Sotheby's 2002 performance fell from 9.5 million in 2001 to just under 5.7 million in 2002. Elswood has also extrapolated from Sotheby's published results that their sold rate for the whole of 2002 in London was just under 66%. And on that basis, it would be significantly lower in the second half of the year. In contrast, Christie's sold rate was 78% for the year in Europe and up to 82% for the second half of 2002.' Tom Hudson of Farr Vintners (which is both a client and competitor of Sotheby's) agrees with his former colleague. It's certainly been a selling point for the opposition and my gut feeling is that Sotheby's has struggled to maintain prices,' he says. Since the increase, Farr's strategy has often been to put bids in at below the reserves, to offset the cost of the new premium. So we are not picking up as much as we would normally buy from Sotheby's, which means that their percentage sold must come down. Looking at the figures, we have bought less from Sotheby's this year and more from Christie's. The simple fact is that the difference in premiums has played a large part in that.' Although the Sotheby's increase was perhaps the most significant event of the year, there were other stories worthy of mention. One was Christie's inaugural Paris auction in September. Again, whether or not you view this as a success depends on who you talk to. Sotheby's Stephen Mould suggested that with only 583 lots sold out of 987, it was hardly the sale of the century. Elswood, though, was bullish about the result and its strategic potential. Disappointing? Not at all,' he counters. This was the first time we have had a new sale location for over 25 years, and with no previous history it sold e1 million straight off. That makes it the biggest wine sale in Paris all year. Admittedly, we were expecting it to be difficult by lot, but it was much higher by value, at 76%, and for a first sale that is very good. The problem,' he adds, was that we weren't sure which sector of the market would kick in. As it turned out, the top end worked spectacularly well and the middle section was where it was weaker. But what some people didn't spot was that this was brand new business, which didn't take a single lot from any of our other sale locations. So going into 2003, we are full of confidence for Paris. We've three sales scheduled and hope to add a fourth.'

New York, New York If there's one thing that all the auctioneers agree on, it is New York's unrivalled position as the world's number one hotspot. It's already bigger than London and I think that trend will continue,' says Barne. Last year it grossed $53 million in sales, a 24% increase on 2001. More significantly, local operators really stole a march on their UK competitors. Morrell & Co went from $3.5 million in 2001 up to $11 million last year and scooped a $5.2 million single-vendor sale in September. However, Acker Merrall & Condit came top of the Stateside auction pile, with revenues of $17.2 million, while Zachy's made a strong and innovative entry with two major sales at the year end. In contrast, Aulden Cellars/Sotheby's, which now runs sales only from New York, had a disappointing year compared with 2001, with sales of 8.7 million, down from 16 million. Christie's, which now operates with the local retailers New York Wine Warehouse on both coasts, also saw its US performance dip from 11 million in 2001 to 9.7 million in 2002. Despite these results, Sutcliffe is optimistic for the US. It's a big country and I believe there are plenty of opportunities, even though it's getting a lot more competitive.' Elswood agrees, but points out that, it's very different from the UK, because it is such a huge collector's market. The trade plays very little part.' Another difference in the US is its greater fondness for incorporating technology into auctions. Last year, the US saw an impressive $17.5 million contribution from Internet wine sales, with $14.2 million coming solely from Winebid.com. Yet on this side of the pond, most traditional auctioneers remain sceptically open-minded about the Net's auction potential. In particular, they remain doubtful about its ability to dovetail real-time Internet bidding within a live sale. The exception is Anthony Barne. The technology has advanced so much that it is now much more feasible than when we last tried it at Phillips, two years ago. Then it slowed things down terribly. But I watched a sale in San Francisco recently and it was almost like taking bids from the room.' As a result, he believes that the acquisition of Butterfields from eBay puts Bonhams' IT and Internet capability at a high level. I think we will see more developments in the direction of online bidding at live auctions in the coming year, particularly in the US, which continues to be a year or two ahead of the UK,' Barne adds.

It's the economy, stupid Without question, the chill wind of economic uncertainty in 2002 blew across world markets. Yet in spite of its frosty presence, auction prices for the top wines remained strong for most of the year. All the seriously blue-chip wines have bucked the downward trend and gone up regardless. Somehow, the market for these impeccable wines seems imperviously healthy,' says Elswood. One effect of the economic uncertainty was to skew the market even more in the direction of classic, top-end Bordeaux. As predicted, the usual vintage suspects performed well for most of the year, with the 1982s and 1990s moving up until the last quarter, when some prices finally began to fall back. Burgundy also saw some spectacular hammer bids for its most famous names. However, Christie's all-Italian October sale saw limited success, because of the lack of enough top-drawer wines. Where the auctioneers have suffered, along with the rest of the fine wine trade, is in the middle market, around the 20-60 price range. The market has become increasingly polarised, with the top tier selling as crazily as ever while the middle has gone very soft,' says Sutcliffe. No one's buying and there's lots of stock around, particularly in young wines such as the 1995 and '96 Claret. While at the bargain end, it's even more of a buyer's paradise. It's all very symptomatic of the depressed trading conditions caused by the lack of domestic and overseas buyers.' This might sound worrying for the auctioneers, except you need to remember that the brokers are much more vulnerable to the international economy,' says Barne. Elswood concurs. When the chips are down the auction market comes into its own. If the market is buoyant the brokers are in a much better position to do the business. But when it is less certain, the auctioneer has more added value. In the past, we have had some of our best sales in periods of economic downturn, because we have a bigger supply of more attractive wine coming in from people wanting to sell. In contrast, brokers are having a hard time selling similar wines off similar lists.' But no one is denying that there could be more wintry weather ahead. Everyone knows it's no good having plenty of wines but no buyers. Moreover, the coming year looks as uncertain as the one just gone. (Do war in the Middle East, terrorism, yet more corporate layoffs and concerns over house prices sound hauntingly familiar?) More tellingly, even top wine prices fell back erratically in the last quarter of 2002, which makes Elswood think that the predicted downturn for 2002 is beginning to impact now. It's possible that things are starting to unravel and will continue to do so at the start of 2003.' So, it will be interesting to see how the auctioneers can steer their way through the coming year. And it will be particularly fascinating to see how the big two' slug it out in 2003. Clearly, there's no love lost between the two departments and with Christie's claiming pole position for the first time since 2000, it adds extra spice to this historic rivalry. What could muddy the waters is the fact that both seem to be adopting a similar strategic approach of holding fewer, but bigger, blue-chip sales, for that is where the profitable auction business beckons. Adding further interest is the hot-off-the-press news that, with effect from 1 January, Christie's has increased its buyer's premium on wine sales in the US from 15% to 17.5%. This now matches the Sotheby's rate and puts both houses at least 1.5% higher than the local competition. All of which makes you wonder whether Christie's will ultimately do the same in London. After all, it has done it before, back in 1986, despite loud assurances to the contrary. Two years earlier, Sotheby's broke ranks by imposing the first-ever buyer's premium on wine sales. In so doing it caused a prolonged and bitter public spat between the two departments. At the time, Christie's played its PR advantage for all it was worth, repeating its opposition to the premium and promising that it would never follow suit. Two years later, under Michael Broadbent MW, Christie's made a dramatic U-turn by introducing its own buyer's premium and bringing it into line with Sotheby's. The big, multi-million pound question, therefore, is, will history repeat itself yet again? As ever, it looks like another interesting year ahead.

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