Sotheby’s Holdings Inc. has more than a sweeping antitrust probe to worry about. Its fledgling on-line auction sites–central to the company’s expensive bid to transform itself into a nimble high-tech company–are lagging.
Lately, the New York auctioneer has been preoccupied with damage control: A federal investigation into whether it and Christie’s International conspired to fix auction commissions has depressed its stock price, chilled the art market and tarnished both firms’ reputations.
The Justice Department investigation couldn’t come at a worse time. For more than a year, the white-gloved auctioneer and its charismatic former chief executive and president, Diana D. Brooks, have been betting big money on selling items over the Internet.
But now, with Sotheby’s reeling from the resignation late last month of both Brooks and its chairman, the on-line ventures face an uphill battle. Traffic on Sotheby’s two sites combined is still only about 1/40th what low-end rival eBay attracts. Sotheby’s new management team had only limited involvement in the project. And Sotheby’s reputation for integrity was a key element of the strategy to cut overhead and increase sales by moving the less spectacular inventory on-line.
Upstart competitors already are using the antitrust probe to try to wrest market share from the major houses. EArtGroup.com, which started in fall 1999, is urging buyers to give its site a second look in light of the “recent surge” of auction-related news.
Sotheby’s decided to venture onto the Internet following the runaway success of eBay Inc. It spent $42.1 million–more than its $32.9 million in 1999 net income–to launch two Web sites, hiring more than 200 employees, moving some of its top live-auction experts to the new division and signing a 10-year partnership agreement with Seattle-based Amazon.com Inc. Sothebys.Amazon.com, its mass-market site, debuted in November. It sells collectibles like sports and music memorabilia. Sothebys.com, which offers high-end art and high-quality antiques, premiered in January.
At a splashy launch party in January, Sotheby’s officials said they expected the company’s shares to trade “like an Internet stock.”
But instead, after hitting a high of $46.75 last April, the stock has plunged to $20.12 a share. According to Nielsen//NetRatings Inc., a New York-based Internet statistics firm, the number of unique visitors logged by each Sotheby’s Web site in January was below 119,000, the agency’s minimum cutoff for analysis. The low traffic is all the more surprising because Sotheby’s doesn’t have an upscale virtual rival: In a surprising reversal last November, Christie’s International abandoned plans to launch its own full-scale site.
Sotheby’s dismal stock performance has put a strain on the company’s partnership with Amazon, which bought $45 million of Sotheby’s stock and warrants for stock last summer. That investment is now worth about $25 million.
Although both companies deny it, the working relationship between the two companies has also been choppy, people close to the matter say.
But new Sotheby’s CEO William Ruprecht says it’s early yet. “We’re really happy” with the sites, he says. At Sothebys.com, “we only have four weeks of sales on the site, and nine-tenths of our 4,800 dealer partners are not yet participating.” He says the company is making an additional investment of $60 million in its Internet business this year.
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