Sotheby’s is establishing long overdue roots in Dubai

The region is an increasingly important player in the art world, says CEO

At 273 years of age, auction house Sotheby’s has survived wars, economic depression and a maze of challenges globally. But can the oldest listed company on the New York Stock Exchange survive another two centuries?

According to its CEO, Tad Smith, it can.

“We are on the cusp of great things,” he says, sitting cross legged inside the auction house’s first Dubai office. Located in the Dubai International Financial Centre (DIFC), the office is long overdue. While the firm establish its GCC roots in Doha nearly 10 years ago amid Qatar’s art buying spree, it only recently launched its Dubai office in March, nearly three years behind arch rival Christie’s. But thanks to its publicly traded position, Sotheby’s is undoubtedly keeping up.

The firm’s shares witnessed a 15 percent rise in February 2017 after it reported $308m in revenues for the fourth quarter of 2016. In March, it raised the highest ever total in a single London evening auction, $241m.

However, total revenues dropped from $335m in the same period in 2015. In February, it was reported its full year adjusted net income in 2016 sunk 30 percent to $99m compared to $142m in 2015.

But that is where the Dubai opening, among other factors, comes into place. According to Smith, expanding further in the Middle East was among several priorities he identified when he joined the auction house in 2015.

“Dubai is perfect, because it’s a heavily travelled zone, very easy to get in and get out, a business-friendly environment here and many people moving through, very easy to get to from the entire region and also from North America or Europe or Asia. So ready transportation, favourable business environment… makes it unique and easy for us to do it here,” Smith says.

Fewer auctions are taking place in person, as buyers increasingly prefer to bid over the internet.

Sotheby’s long time boss of the Middle East and India, Edward Gibbs, agrees the region is significant for the auction house. He says categories such as contemporary Arab and Iranian art have grown exponentially over the last decade. While sales for such pieces have been held in London annually since the 1970s, Sotheby’s has witnessed buyers from the region growing year on year. Its Middle Eastern client base has increased by 76 percent over the past five years, while the number of clients in the UAE grew 154 percent over the same period. Last year alone, customers from the UAE rose 39 percent, despite the economic slowdown.

“There’s always been interest [for Islamic art] from the West and that interest really goes back right to the 19th century when the great collections of Islamic art were formed in Europe and North America. There was a very long standing and deep rooted tradition of Western scholarship around the Middle Eastern art and Islamic world dating back over 100 years. Is there now an upsurge in interest? Yes, I would say there is,” Gibbs says.

Interestingly, the chairman says sales for Islamic art were booming at the height of the global recession, in 2009-2011.

“When traditional stocks and shares are suffering and your money’s not doing anything in the bank, the pleasure that art brings, the prestige ,and the investment as well, it silhouettes the ultimate luxury,” he says.

Buyers are also getting younger. To accommodate the new generation, Sotheby’s pioneered a younger collectors’ club called the ‘1744 club’ - 1744 being the year the auction house was founded. The number also represents the age bracket for the club participants, starting from age 17 up to 44.

It is because of a younger audience that Sotheby’s is turning towards digitalisation. Despite having almost no digital platforms before the appointment of Smith, the firm now has 1 million followers on social media and the largest online editorial and media company. This year, it also sold 22 percent of its lots online, partly thanks to its enhanced digital platforms that allows users to zoom in and out of photos and request detailed information on items up for auction.

While art auctions were historically carried out in a room where people were physically present, today much of the bidding is done via telephone. Now, the future is online.

“Buyers want greater privacy,” Gibbs says. “They don’t necessarily want to be recognised. They don’t want to be identified by fellow collectors or competitors. And they’re looking for confidentiality.

“I think the migration from physical presence in the room to participation on the telephone to engagement online is a natural process. So really, online bidding is not so different to bidding on the telephone. Bidding online doesn’t preclude the possibility of physically viewing the painting. You can go via the website and you can request a condition report. You can get an update. You can get amplified information from the department about the lot and there is a zoom facility on our digital catalogue where you can go and look at details. So digital is hugely significant for us both for improving and facilitating the way that our existing clients do business with us but also as an access point and a portal, a gateway for new clients coming into the business.”

Tad Smith says government policies that support economic growth also boost Sotheby's.

While digital may seem like the natural stepping stone, it may be the only expansion Sotheby’s undertakes in the region at the moment, as Smith refused to divulge any information on the auction house’s expansion plans, revealing only that it will continue to operate in the Middle East.

The lower oil prices also seem to be having little impact on Sotheby’s.

“The oil prices, particularly in the second half of last year, stabilised. The UAE, and particularly Dubai, is relatively less sensitive to oil prices than some of the other countries in the region and so it provides a very healthy finance sector, services sector, tourism sector that some of the others don’t have quite the benefit of,” Smith says.

“Our internet products have accelerated noticeably in the past year-and-a-half and this is an extraordinarily well wired, educated population that is very comfortable buying online. So all of those things [worked] well for the region doing relatively better than other territories.”

But territories may not be the only factor Smith has to worry about. With giant competitor Christie’s already present in Dubai, there is fierce competition. Although Smith says he is not concerned.

“We as a firm spend most of our time thinking about the clients and our view is if we focus on our clients and get that right, all the competition takes care of itself. It’s not to say we don’t have competition - we do. [But] the biggest competition is sharing our clients’ attention span, because we need to get their attention. They have lots of things they could be doing with their time and spending it with us isn’t easy, and they’re very busy people,” he says.

“The galleries and the dealers are also our clients. So from my perspective, people who might compete on business occasionally are often our friends and clients and we wish them well.”

The Harvard graduate, who has also taught at New York University’s Stern School of Business since 1999, says Sotheby’s has been selling pieces relative to the region for over 250 years, including pages of the Koran it sold in 1774. And it’s here to “do it for 250 years more”, says the chief executive.

An art collector himself, Smith consigned his very own Patek Philippe watch in Sotheby’s December sale.

“I wanted to try being a consigner at Sotheby’s because I bought things there but I never consigned anything. So I walked around the house and I said to my wife, ‘can we consign this painting or that painting?’ She said, ‘no, no, no and no’. She said I couldn’t consign anything and then I said, ‘honey, how about all that jewellery I gave you all over the years that you never wear?’ She said, ‘Absolutely not. Out of the question.’ So I took the watch off my wrist, took it to the watch department and they sold it for me,” he says.

Sotheby's sells tens of millions of dollars worth of Islamic art every year.

Now that he’s missing a watch, Smith says his next purchase will be at a Sotheby’s sales. Why? Because they make for good deals.

“It’s very likely to be an auction watch because auction is absolutely the best place to get a deal. Seriously. First of all when you look at the watches in an auction, you see very large numbers of them, you get quality control, you get the Sotheby’s promise that you get an authentic watch, you get protection around that, the trust around that. You don’t have to guess what the commission is. You walk into a retail store, you have no idea what the overhead is going to be there,” he says.

“I think last year, something like 60 percent of our lots were under $10,000. Most people don’t know that.

“And the second thing - this is the secret - Sotheby’s has a lot of very, very wealthy clients, but it doesn’t mean they want to overpay. They’re careful about what they buy and that means we have to be really oriented toward value. It might be that the things we sell are expensive but it doesn’t mean that they’re overpriced.”

At the end of the day, it is all about getting a good deal. And after 273 years, it is safe to assume that Sotheby’s knows a good deal.

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