Paper given at the International League of Antiquarian Booksellers conference in Edinburgh, September 2000 on the relationship between the trade and the auction houses

When addressing the ABA at Stratford-on-Avon a number of years ago, I pointed up some of the common interests and specific advantages and services that the traditional auction houses had to offer to dealers, so I do not need to add to them here. [see ABATALK 1989]

I spent 24 years at Sotheby's because it was a company that, with a few healthy misgivings, I respected. It gave me many opportunities, and during my time there I learned a great deal, and I believe I contributed something. So, though my leaving it was not entirely without its tensions, I am not here in a spirit of discord, rather I shall attempt a reasonable assessment of how things are vis a vis the trade and the auctioneers now.

Therefore, I stand before you neither in the guise of a game-keeper nor of a poacher. Although, I have to say, I am not sure that I know all the differences between them.

That having been said, I am, nonetheless, very pleased to have made the change to being a dealer and my own boss, particularly in light of the changes and events that have occurred in the major auction houses in the interim.

When writing for American Book Prices Current in 1994, after leaving Sotheby's, I commented at length on the changes that had taken place in auctions and the auction process in the last 50 years. I called it 'Auctioneering: Whence and Whither'. I had toyed with removing the first 'h' in 'Whither' because, even then, I could foresee difficulties for the auction houses, largely in terms of the direction they were pursuing. They were increasingly becoming part of the entertainment world, but also their internal arrangements were rapidly changing and the supply of good material to sell seemed to be on a downward spiral.

By and large, I refer in my comments here to Sotheby's and Christies, the two main players, in terms of the auctioneers, though I see Bloomsbury has announced that it has them in its sights.

My sense is that there has been almost as much change in the last six years, since I wrote that article, as there had been in the previous fifty, or at least potential for change. The general trend at present, it seems to me, is towards a levelling of the playing field in favour of dealers, rather than benefiting the auctioneers.

I will try to build the picture of what is happening from a consideration of each cause with its consequences.

I sense that the multi-owner specialist book and manuscript live auction sales at Sotheby's like English Literature and History, Travel, Maps and Atlases, Continental Books and Manuscripts, even Music, are becoming increasingly difficult to supply twice a year and that general sales will for a while become more the trend. Meanwhile, more and more sales in all areas of Christies and Sotheby's are becoming amalgamations cutting across departmental lines, the so-called theme sales. This will have the result that specialisation in those areas in the auction houses will progressively atrophy and their presence in those markets will recede. Buying opportunities for specialist dealers both at auctions themselves and in competing with auction houses for material will, in some proportion, increase. Unless it is just me getting older, I think the trend in auction houses is also to prefer sales-people to experts. The more this happens the more it will prove to be of advantage to expert dealers.

The auctioneers' premium, I scarcely need to remind you, has been raised to levels that parallel the absurdity of fuel costs in Britain. To about 25% at Sotheby's, including the unrecoverable VAT, and to about 21%, including the unrecoverable VAT, at Christies (though at present both operate the the same lower figure for books and manuscripts). These hikes will, I predict, work against the auction houses, as the message sinks in (and it does take a while for it to do so), and as dealers get cuter in pointing out the enormity of those costs and charges to private clients. Wait for an economic downturn. The combination of greed and incompetence that these levels of charging represent in the auction houses seems to me to force on us considerations about their managements' sanity, but that is their problem in the long run. Nobody can ignore another 25%. The old premium at 10% as a sort of finder's fee paid to the auction houses never seemed entirely unreasonable to me, although I should always have preferred to have stuck to the 15% vendors' commission that obtained before the premium was first introduced. (At the time of the introduction of the premium the sellers' commission was reduced to 10% - an ideological decision that failed to recognise that books and manuscripts take longer to catalogue than most other things). I openly opposed the raising of the premium to 15% when I was still at Sotheby's and am a vehement opponent of the present levels.

But I do recognise that telling a vendor that auction house commissions and charges and VAT amount to some 35 or even 45% of the monies raised by the sale of their property can be very effective in persuading them to sell to me rather than putting an item into an auction. By overcharging their clients, both buyers and sellers (while apparently doing less for any of them -- outside the expert departments themselves), in an effort to run businesses that they cannot really afford and to pay themselves excessive salaries or dividends, I sense that those who have come into the Art world from outside, have thereby given up ground to dealers. The beneficiaries at this stage are perhaps as much the smaller auction houses as the dealers. Also, lotting-up seems to be on the increase -- here dealers can win if they don't defeat one another in the process.

High premiums will not only have effects on vendors; they will also discourage buyers. I am looking less and less to auctions for stock; they want too much of my potential profit margin. At the very least, I certainly am much more strict with myself in calculating my limits. I buy at auction only when I have to or when they have made mistakes. I am finding that clients who once regularly asked me to represent them at auctions are increasingly unwilling to pay up to 37% on top of the hammer price, that is the premium plus unrecoverable VAT and a 10% commission plus VAT to me. Those clients more and more prefer to buy directly from me at my fixed price, which generally includes the VAT, since I mostly operate the margin scheme. High premiums will doubtless result in more unsold items which will in time depress public confidence in the auction process. What you see is what you pay with dealers.

Auctioneers are metabolically ever the optimists, and always think that negative publicity passes them by, indeed that there is no such thing as bad publicity. But I believe that the anti-trust and the class actions and claims against Sotheby's and Christies will prove hugely damaging to them . I believe they already have. And as the cases become more and more public they will increasing damage their repute and the willingness of clients to trust in their veracity [since giving this talk they have jointly agreed to pay over half a billion dollars to some clients, Sotheby's has been fined $45m, the ex President of Sotheby's faces a huge fine and the possibility of a jail term and she is cooperating with the authorities by shopping her former boss -- I predict that even this will not be the end of it]. The Chinese walls have been ripped down. The auction houses' claims to integrity have been exposed as pretty hollow. Their claims to deal fairly and honourably with conflicts of interest have been exposed as pretty groundless. I believe this will lead to greater regulation of the auction business as a whole, which will severely limit their room for manoeuvre, and manipulation. Regulation and loss of reputation will damage the auction houses and both will operate in favour of dealers.

The class actions may, of course, actually even bankrupt both Sotheby's and Christies, perhaps even thereby removing the two major players as the monoliths we now know and may lead to a spreading of auction business among an increasing number of competitors, giving all of them less profile.This will tend to favour dealers.

The increased competition between Sotheby's and Christies and their aspirant rivals, Phillips, Bonhams- Brooks and Bloomsbury, will have the same effect.

There are rumours of both Sotheby's and Christies retreating from their central London locations. For their businesses, despite immediate real estate benefits and cost savings, this seems to be a high-risk strategy and dealers will no doubt reap some of the benefits.

So, it seems to me, the auctioneers have done / are doing a fair number of things to shoot themselves in the feet, much of which will be good for the trade.

In 1994, when I wrote my article for American Book Prices Current, I metaphorically raised my hands in horror at the thought of electronic commerce. Burying my head. Hoping it would go away. Believing that it would have a minimal effect on me.

I have now come to see it as the most positive potential revolution for the business. And, it seems to me, to be particularly suitable for sales of books and manuscripts. It is also a revolution which more than any other will contribute to the levelling of the playing field between dealers and auctioneers.

At the present moment, Christies appears to have only a mildly platonic relationship with the Net as part of its auction business; Sotheby's has embraced it with orgasmic enthusiasm. In time, Christies may be seen to have missed the boat; or Sotheby's may find that it has developed a product before properly researching the market for it. At present, despite Sotheby's putting in one or two items that would have sold for the same price on any street corner (I mean things like the Declaration of Independence) there do not seem to be many signs of the e-bay phenomenon spreading upmarket. The most successful auction on the Net in the world of books so far has been a sale of Noddy Books. Maybe there are trends to be perceived in that -- ie the success of the trivial and of theme sales. At present Christies seems to be right in having decided that the low levels of price generally achieved on the Net do not justify the investment or the deployment of staff time. That is not to say that the levels of business will not increase, but I think that the more individual an item is and the more elements of taste are involved, the more it is necessary to see the object itself before purchase and to have time for consideration, with an uncomplicated way of reversing the sale, should that prove necessary. Photographic reproductions on the Net can start a dialogue about many objects; but it is less likely to end the conversation about anything sophisticated. This suits the relationship between a dealer and his client more than it suits the auction process. But at least Sotheby's have openly recognised the trade as 'establishment figures', so to speak, in the Art World, which may give the public more confidence in their relationships with dealers. I have not yet heard of any regular use by the book trade of the Sotheby/dealer linkup and what one has heard tends to suggest that nothing startling is happening. I concede, however, that my research consists mostly of hearsay and newspaper reports. I nonetheless would not be surprised to hear that Sotheby's will sometime slacken its embrace on the Net. Auctions need instant success and fairly immediate returns. The fact is that auctions presently being held on the Net carry high costs (partly because Sotheby's is operating from expensive real-time offices) and involve a massive absorption of staff time and expertise with little apparent profit, to judge from Sotheby's most recent half-yearly results. ** [see end].

Because of the importance that I attach to the Net for the trade, I should like to congratulate the ABA and ILAB*** [see end] (though I will not comment on the politics or ownership issues of the latter) for their prompt response in rising to this opportunity by putting websites and search engines together to serve their members. I am sure they will be of major benefit to the trade, and I would urge all members to give as much support to them as they can. I think it may be the most important thing the ABA will ever have done for its members. I am not going to predict the levels of trade that will be done on the Net, but I have no doubt personally that it will amount to a significant, or let us say worthwhile, level in our individual businesses. Certainly the extremely low costs of operating on the Net make it an extremely attractive medium. I also have no doubt that the ABA and ILAB have taken the right route of charging a fee rather than commission on sales and that they have not, like Lytton Strachey, sought to interpose itself between the individual dealers and their clients. The organisational sites must remain hosts; not try to be middlemen in effect dealing in their members' goods.

As I have said, I believe that the Net will prove to be a great leveller between the trade and the auction houses. It is the first means, cheaper and more effective and world-ranging than fairs, and less hassle than fairs, that gives individual dealers the potential to reach the same audiences as the auction houses and in the same numbers, especially since much of the work is done by the potential purchaser himself. Trade association websites and search engines will be of tremendous importance in this. Indeed, it is my view, that search engines, like those of the ABA and ILAB, being the sites of the official organisations, will very quickly establish themselves as major, if not the major visiting points for collectors. The names 'Sotheby's' and 'Christies', now more famous for other things than for books or manuscripts, will find themselves at no great advantage on the Net once the trade websites and engines have established themselves. Indeed I believe the auction houses will be surpassed by the trade groups as the places of first resort for collectors. What Sotheby's and Christies will find, I suspect, is that old-style branding won't cut as much ice on the Net as they are used to.

Certainly the auction houses can afford to spend more money on advertising, but I wonder how well the traditional advertising media actually serve in attracting clients on the Net itself. I have no doubt that advertising, especially in the obvious trade media will be necessary at first, but advertising to Net clients will be best done on the Net itself and this can be done more cheaply (by and large) and by everyone. Although I understand that e-bay has spent £75m on securing a key spot on a major search engine, most commentators question the wisdom of this and the effectiveness of it. Contacting clients once one has their Net addresses is ultimately no easier for large organisations than it is for small ones.

There are a number of other advantages that the trade has over auction houses on the Net.

The trade has stock on a more regular and more permanent basis than auction houses.

It has the advantage of being able to wait until the right buyer finds the dealer with the goods.

It is not an unquantifiable risk -- it is already happening -- ABE now claims to have 250,000 hits a day.

It will be easier for dealers to establish positive reputations on the Net, and indeed they will need to. With auction houses, clients are dealing with amorphous bodies not individuals -- there are a number of different standards (as many as there are individuals) in auction houses. Dealers can be more consistent in their descriptions and more straight-forward with their clients. It is more easy for an individual to build and protect his reputation. It is easier for him to apologise and make amends if things do go wrong. But the other side of the coin is that all reputations are easier to lose than they are to build.

Unlike the dealer organisations, the auction houses have no real codes of practice, nor the means of enforcing standards, particularly on trade cataloguers, as in the Sotheby's scenario. I believe that the ABA and ILAB should look at their rules again in light of the Net and do everything they can to strengthen them. They should make the public feel as comfortable as possible. It seems to me that auction houses conditions of business, so full of legalese and get-out clauses, make the public very nervous. And at present users of the Net need every reassurance that they can get. The organisations that prove themselves to be most reliable will prosper most on the Net.

There seem to be greater problems over transparency for auction houses on the Net than there are for dealers, and more even than with traditional live auctions. Indeed, recent cases have demonstrated some of the difficulties that Sotheby's has encountered and bad news travels fast on the Net. Acting, as Sotheby's does, for a third party and often not ever handling the goods at all, makes for problems and encourages a reluctance to cancel sales or control all the stages of a transaction. As the owner and principal, the dealer can take his decision on the spot without having to refer to a ever-self-inflating legal department. Even in the traditional auction environment, the predominating presence of investors, accountants and legal departments has cut down the flexibility the experts once had in dealing with clients' problems. It is hoped that the ABA and ILAB will deal swiftly and fairly with complaints and problems -- this will give members enormous advantages over the auctioneers. I should like to emphasise the need by the trade organisations to agree with their members as stringent and binding clauses as possible about the accuracy of descriptions and the need for straight- forward honest dealing. In a way not true before, we can all be tarred by the same brush very easily and publicly on the Net and none of us can tolerate any rogues. We all need to know that disciplinary action will be taken, even expulsion from the organisation, and that these penalties and actions will be made very public to protect the integrity of others. I would recommend the immediate formation of a special Ethics Committee for the ABA and ILAB for the Net.

Because it is a related point, I will mention in the form of a recommendation what I see to be the Clause 4 of the book trade. I believe that dealers should not be required to give automatic discounts to other dealers on the Net -- if this were done, a major restraint on dealers' readiness to use the Net would be removed.

In general, therefore, I believe that dealers will be able to be more flexible than auction houses on the Net and they need to take advantage of that as much as possible.

The auction houses will have virtual 'premises', so to speak, on the Net that need not in any way outgun the trade organisations or even the individual trader. This removes one of the auction houses' most significant advantages in terms of traditional trading.

They will also find that they have very much more competition from their own kind, particularly in narrower and narrower fields of specialisation, than they have had traditionally. This will tend towards spreading the goods more thinly amongst them thereby reducing the visibility of all of them. And, of course, e-bay is sitting there very successfully taking advantage of every flicker in the market and will want to go head- on for business at higher levels of value. Whether wisely, or not, it has already bought Butterfield's.

The additional charges that auction houses make and the higher ones they will increasing look for, even on the Net, will also operate to their disadvantage -- they will be dealing with audiences that will have less sympathy with such charges. This is why it is vital that the ABA and ILAB charge fees not commissions.

I think, therefore, that the Net will prove a major tool for the trade in combating the power of the auction houses, especially in terms of selling, because eventually we will all be able to reach the same clients as easily as each other, and, more to the point, they will be able to reach us.

It is on the supply side that the auction houses still have the advantage, although I think their commissions and costs and loss of repute and shedding of expertise, will increasingly militate against them. But at present, unlike dealers, auction houses have a web of networks round the world attracting material for sale. I think it more and more likely that, as their costs rise, the auction houses will use these resources to seek out and obtain major single-owner collections for sale rather than multi-owner general properties and that such sales, perhaps with themes sales as well, will become their main staple. More and more, as well, they will lean towards celebrity sales. Even departmental general sales will, I predict, become less and less profitable for the auction houses, with the result that much of that material will most naturally gravitate in part towards the trade.

The trade has its organisations, its organisations have run fairs round the world, they have now established websites and engines for their members. Will joint buying by dealers be far behind?

Many national dealer associations (not in the book trade which is going its own way at present) are joining together under the CINOA umbrella [the international confederation of national dealer organisations]. Part of their plan is to attract material for dealers to buy as well as acting as a forum for retailing. To achieve this, dealers must develop all means possible and practical to act in unison. For instance when one dealer wants to take only certain items from a collection, he should always arrange for other colleagues to take the rest -- thus a service offered by auction houses could be paralleled by the trade.

An extension is for dealers to see the auction process not as an alien way of selling things but also as a powerful tool for them to get things to sell. If relevant dealers got together to pitch for single owner sales, they could offer equal if not superior expertise to that offered by auction houses, but could also offer to sell at auction over the Net through organisational websites, if the organisations develop, as I think they should, an auction facility. If they do not CINOA will, and maybe in time the ABA will join CINOA.

To conclude -- I think things are looking pretty good for the trade in relation to the auction houses.

I am glad to be on the side of the bread that is buttered.

[**Auctions thrive best on real-time participation -- internet links to live auctions may prove to be an advantage, but not seeing the goods before you have to buy, or have a real possibility of returning goods on any reasonable basis (as you can with a reputable dealer), will present great difficulties, particularly with non-professionals. The excessive profits auction houses now seek to make on packing and delivery will also act against them -- as will the insurance 'policy' they have run for years].

[*** At the time this paper was written, I did not fully appreciate that the ABA and ILAB are in effect setting up their websites and search engines in competition with one another. Whatever the reasons for this, and whatever the politics of the situation, this failure to act in unison seems to me to be deeply regrettable and I trust that sense will prevail.]

ROY DAVIDS

(copyright Roy Davids)