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Sotheby’s Partners with eBay to Counter Rival Christie’s

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Activist pressure on Sotheby’s

As pointed out earlier this series, Sotheby’s (BID) has lacked a clear Internet strategy, and activist investors have cited this issue to justify their actions in the past. Daniel Loeb’s Third Point, the activist hedge fund that is company’s largest shareholder, said in an October 2013 investor letter that “Sotheby’s is like an old master painting in desperate need of restoration.”

This article will discuss a series of setbacks that Sotheby’s has suffered as it has implemented strategies for the online auction market.

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Sotheby’s and Amazon

In June 1999, Sotheby’s partnered with Amazon (AMZN) to sell collectibles and art via the online retailer’s website. Amazon  invested $45 million and acquired a 1.7% stake in Sotheby’s. However, this partnership saw a friendly dissolution in 2000 over skeptical customers and apprehensions about the authenticity of goods sold. News reports also noted the partnership’s issues with shipping and servicing customers.

Sotheby’s and eBay

Sotheby’s and the online marketplace eBay (EBAY) announced a partnership in July 2014, months after Loeb had criticized Sotheby’s for following “antiquated business practices.” This deal marked the second attempt by both companies to come together after a failed partnership in 2003. Online art sales have gained in importance, so the companies hope to lure a “generation of shoppers that is increasingly interested in art and comfortable spending larger sums online, or even through their mobile phones.”

It remains to be seen whether this recent partnership with eBay will deliver sustained profitability for Sotheby’s.

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Competition from Christie’s

Perhaps Sotheby’s entered into the partnership with eBay to counter the auction house’s major privately owned rival Christie’s. Francois Pinault, a French billionaire and luxury goods businessman, owns Christie’s.

Christie’s has been boosting its online presence. Last year, the company said it plans to invest $20 million in “technological and digital advancement.” Christie’s was the first art business to launch online participation in live auctions in 2006.

In 2014, Christie’s said that it saw “an increase of 48% in the volume of lots purchased” through the company’s LIVE platform. According to the latest figures for Christie’s, private sales totaled $1.5 billion, up 26%, while e-commerce sales were $35.1 million, up 60%.

Christie’s recently acquired Collectrium, a global digital art collection management solution. Used by over 25,000 art collectors, “the subscription-based service offers collectors a highly secure, cloud-based solution for accessing and managing their art collections from anywhere and on any digital device.”

If you are interested in gaining exposure to the specialty retail or luxury goods segment, consider investing in the Vanguard Total Stock Market ETF (VTI). This ETF’s portfolio includes cyclical stocks such as those for Apple (AAPL).

The next part of this series will provide a detailed analysis of how Christie’s achieved a lead over Sotheby’s.

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