A Conversation with Sotheby’s CEO

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Audiocast: A Conversation with Sotheby’s CEO

Featured Speakers:

Evan Beard (EB), Head of National Art Services

Charles Stewart (CS), CEO Sotheby’s

Beginning of call – Operator reads: Thank you for joining today’s Bank of America audiocast: A Conversation with Sotheby’s CEO, Charles Stewart. The views and opinions expressed are those of the presenters as of May 26, 2020, subject to change without notice and may differ from views expressed by Bank of America Corporation or its affiliates. This is presented for informational purposes only and should not be used or construed as a recommendation of any service, security, or sector.

Please listen to the end of the call for important disclosures. I will now turn it over to your host Evan Beard…

EB: Welcome everyone and thank you for joining us today, I’m Evan Beard, The National Art Services Executive at Bank of America, and I am joined today by Charlie Stewart, the global CEO of Sotheby’s.

Charlie, thanks for joining us.

CS: Thank you for having me Evan, it’s a pleasure.

EB: So Charlie it’s been about a year since what I like to call the shot heard around the art world when it was announced that Patrick Drahi, was going to acquire Sotheby’s, can you talk to us about what drove that acquisition and how you landed in your current seat as the CEO?

CS: Sure, happy to do that and I would just maybe add to it that clearly this was not the first year that Patrick or I necessarily expected but if we went back to the time when we were making these decisions I think that Patrick’s interest in this business is really very longstanding as a, as a collector and someone whose been an active, actively following the art market he’s always had an interest and you know really the opportunity sort of presented itself for all sorts of reasons over the course of 2019, and so just as you said the acquisition was announced about a year ago and closed in October. I have worked with Patrick for the last several years and prior to that worked in a Global Investment Bank in various roles and you know have a lot familiarity with high end global professional services organizations, such as Sotheby’s, so it was sort of a natural leap for me to leave my previous role and join Sotheby’s last October.

EB: And, you’ve been in the seat and it’s been an interesting first six months or so and this is you know an interesting time for all arts organizations. But talk to us a bit about these last couple months we’ve watched Sotheby’s do a lot in the digital space, help us understand was this core

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to your strategy or did you have to shift pretty quickly?

CS: Yeah, it’s certainly been a very busy last three months you know since to some extent we as a global organization had watched this start to unfold and had reacted to COVID in our operations throughout Asia starting in January. So, you know we had a little bit of a head start in terms of you know as it spread, how to react and then we dealt with it in our offices in Italy and throughout north continental Europe and so on. And as we sit here today we’re watching the same in, in reverse, where 70 or 80 % of our offices in Asia and Europe are reopened at this point. And we’re using that same road map to plan our re-openings in London and New York, which are probably our two largest selling venues where we are not yet reopened.

But all that said, yes it is been a lot of what’s going on in the business of things that we have been wanting to do anyway certainly focusing on developing our, our digital tool kit including marketing and catalogs and actually you know auctions themselves and for both by somewhat out of design and then more recently out of necessity. We have shifted very hard towards these digital formats which fortunately have worked very well. It’s kind of remarkable that even operating remotely since March 1st we have completed over I think it’s a little over 50 auctions around the world since March 1st. And as we look at our results so far in online sales in 2020 we‘ve surpassed our levels for the full year of 2019 and we’re only 5 months into the year obviously.

EB: And we’ve watched this pretty closely as well and sell through rates have been quite good and demand seems to be stable many of the listeners on this call are in lots of different industries and lots of the different parts of the capital markets and there’s been some really challenging times in capital markets, why has demand held so stable in the art and luxury space?

CS: You know, that’s a really interesting question Evan, and one as you’d expect we spend a lot time talking about, and I’m not sure I have sort of a formula like answer for you but it’s a combination of factors we believe, one of which is that collectors are actually probably somewhat more focused on some of these passion areas. They may have more time for it, there may be fewer distractions on their time in terms of how they engage with things that interest them, so I certainty think we’re seeing a higher overall level of engagement with clients.

Secondly, when you think about art or these luxury objects in a financial context there’s a huge amount of volatility in the market and I think that by comparison some of these types of areas to invest may be that much more interesting for people. And then lastly I just think you’ve got the ever present and never to be underestimated emotional connection that people have with these paintings and objects I know as we like to say in, in these times precious things become even more precious. So for all those reasons you’re absolutely right we have seen high sell through rates we are hearing generally more from buyers than from sellers of things and you know certainly people looking you know thinking that now may be the time they can find the painting or the object they’ve wanted for a long time and so that is, that is indeed driving you know sort

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of things behind the success we’ve had over the last few months it’s, it’s a bit counterintuitive but it’s certainly what we’ve experienced.

EB: You know it’s interesting and as we look forward let’s take a six month period you know we’re going to go into after this auction season which we’ll discuss but fall auction season and we’ve seen interest rates drop globally, we’ve seen pretty aggressive monetary policy, a lot of fiscal responses around the world. Does this bode well for art prices in the near term? What’s your guidance as you think about the market in the, the mid-term?

CS: Yeah, well I guess I’m glad I, wasn’t making six months forecasts six months ago.

EB: Hmm, yeah that’s a good point, that’s.

CS: I don’t think so many companies have pulled back their guidance for 2020 and it’s obviously there is not a huge amount of visibility so I would maybe preface it with that comment but I think again the real master pieces the unique things that become available maybe because of COVID and the times that we live in. I think demand for those you know unique pieces will continue to be very high and I’m not sure you’ll see you know significant you know price degradation. For you know emerging, emerging artists and ones where you know the work is, is sold you know primarily on, on more of a primary basis perhaps you might see a bigger impact. And for the middle tier of artists, for established artists, but maybe is not their, their best known work I don’t think it’s unreasonable to think you’ll see some price correction although as I said earlier we’ve been very surprised by how much demand we’ve seen from buyers all over the world thinking that now is the time to find the thing they’ve always wanted.

EB: Now, that makes sense one area in the market that is under a bit of pressure is the gallery space and you know we’ve watched in the last month or so that Sotheby’s announced a new gallery platform could you help us understand what that is, and what changes and how your collaborating with the dealers and galleries out there?

CS: Yes, and I’m glad you asked about the Sotheby’s gallery network because it is indeed an initiative that you know I think it, it, it was an idea that we had had for some time but maybe again was accelerated because of COVID we were able to reach out and partner with you know a number of very highly regarded renowned galleries and provide a an alternative way for them to sell some of their top material and you know we’ve had it up for about a month at this point you can see it on our website and it’s been very successful so far there’s been a lot of traffic, there’ve been transactions you know my expectation is that we may add additional galleries to it as we go forward and I’d say across our categories we’ve seen a good opportunity to collaborate with dealers, whether they are art dealers or watches dealers or jewelry dealers or furniture dealers because you know indeed what may have been their primary distribution mechanisms are you know somewhat paused at the moment so everyone is open to new things including us and this is this is a great example of it and it’s something that we are very excited about and tend to

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continue with even as the world reemerges.

EB: Yeah, along those lines you’re your chairman of fine art had mentioned in the press somewhere that you’re in the theater business for the last 250 years and now you’re in the streaming business. What elements of this strategy are going to be around for a long time? What parts of the business model should folks on the call expect to change over the next years that are here to stay?

CS: It’s a really interesting question and, and you’re right my colleague, Amy Cappallazzo made that exact comment I think it’s, she’s completely right. We are spending a lot time on how to replicate you know a lot of things that use to happen in a physical environment in in an online environment. Our auction, our live auctions themselves to some extent you know where bidding is often happening by phone or online you know in a socially distanced auction room or even one that is closed to the public we can continue to conduct auctions. We did one in Hong Kong last week as a matter of fact, it was very successful with a live auctioneer, streamed but all of the bidding was happening either online or, or by phone so it’s more of a studio auction experience you know let’s say. And obviously you know that will to some extent depend on the regulatory and safety precautions by country and at the time. But there are ways for us to adapt our current model and beyond that I think there’s all this talk about digital everything, digital marketing, digital catalogs, digital viewing rooms, you know online auctions. And I think that actually we’re probably not spending enough time thinking about the recasting of live experiences. At the end of the day all of us would agree who love art and follow it that being part of this community, being able to experience things, experience art you know physically is very important and is not fully replicable at least so far in an online environment. So we’re also spending a lot time thinking about what the future of live experiences you know looks like. I think all of us will remember for a long time the first you know mass gathering that they choose to attend once they are able to and we’ll all be much more selective about those, those mass gatherings. I hope it involves Sotheby’s somehow if you’re an art collector.

EB: Will we have rooms full of bidders in the future or will you all be in the studio somewhere broadcasting evening auctions around the world? Is that what the model will look like?

CS: You know it’s hard to say we are a little bit, I would say scenario planning for different outcomes you know we, we don’t really know at what point the world may be totally different once a vaccine is fully available and travel restrictions are eliminated and people are feeling much more comfortable with everything. But I suspect that will take time at a minimum and so you will see more online auctions you will see some, some live auctions but where they’re streamed and where there is a lot of restrictions on being able to attend and where you see live auctions with people in the room clearly that will be consistent with safety and you know physical distancing rules that make sense. So we’re, we’re planning you know quite, quite honestly for all of those eventualities and we’re seeing that play out in different ways around the world right now. For example, we had a sealed bid auction in in Hong Kong last week it was a very interesting you

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know different take on an auction format that that worked very well but that is something we may not have tried pre- COVID and you know we’ve got a bunch of ideas for the rest of this year and beyond that we’ll be rolling out in the weeks ahead.

EB: You know, it’s interesting as we shift to the near term we’re coming into auction season now and you’ve been making announcements on social media, through sothebys.com, on some of these great consignments you have. Tell our potential bidders out there, as well as some of our consigners out there you know, what’s this auction season going to look like? How do you get these multi-million dollar pictures sold? What’s it look like?

CS: Well, you point out our auctions which had originally been scheduled for May we’re planning to conduct at least the New York one at the end of June. Our Hong Kong auctions which would’ve been in April will take place in early July. We’re incredibly excited about them I think they’re you know remarkable sales into their own right and the quality of the material will, will speak for itself and they definitely fall into the category of very high quality material paintings and especially that collectors want to own. So, I think you know we feel very good that we are able to do that. Again the marketing and the physical viewing will be adapted for the current realities but we don’t have any doubts that we can, we can pull off these auctions with those adaptations. And we’ll be saying more about that publically in the days ahead as we get you know a little bit closer to it but you know we’re certainly planning to proceed bits with everything we know right now.

EB: So a couple more, we have a lot younger collectors on the line here and it’s been interesting to see from our advantage point kind of the convergence of the art world, the fashion world, the sneaker world, can you talk about are the other business lines or areas that Sotheby’s will be going into beyond you know your art auctions that we should be pay attention to.

CS: Sure, I mean I think that you know we, we are organized in Sotheby’s into two primary divisions, our Global Fine Art area and then our Luxury area. And in the luxury categories which for us are primarily jewelry, design, watches, and wine and spirits. There is a lot of this whole trend around re-commerce and, and the growth of market places and all kinds of different categories sneakers would be a great example with companies like Stock X and Go. You know there is clearly big markets out there and an increasing interest in the secondary markets in those categories. And again I think we have a fantastic brand you know globally established one that stands for trust and authenticity which are particularly important in any secondary market I think for objects and we have big growth opportunity there. So you know in the sneaker category you may have seen we sold a pair of game worn Michael Jordan Air Jordan’s from his rookie season for over $500,000 last week and had several bids from around the world. It’s a great you know great small example of, of you know what we can do in that space as we continue to develop it.

EB: Timed perfectly for the documentary.

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All right so as we close this out give me two things, what’s been the most surprising aspect of coming from the banking world and joining, becoming one of the leaders of one the great institutions in the art world? And then you know what’s the most fun part of this job?

CS: Yeah, I think those are probably both the same answer. I mean I came into the organization in October and you know kind of got to know both the company and the people inside of it you know very quickly. And I understood the business model aspect of it reasonably well and a lot of that was pretty familiar ground to me. What’s been absolutely fascinating is the quality of the people we have on our team and also you know the fact that we get to spend our days surrounded by these extraordinary arts and objects. So give you a couple of examples of each of those things. On the people front you know we’re a 276 year old company we’re older than United States itself actually, having been established in 1744 and uh and yet the company feels very much very entrepreneurial you know very much like a startup we call ourselves the 276 year old startup. And I think it’s that dynamic workplace and mindset that has kept Sotheby’s at the forefront of its markets for you know for decades if not, if not centuries. So that has been working with people who are incredibly passionate, incredibly expert, and very committed to the organization has been an absolute pleasure. And on the art front you know every once in a while if I’m having a very crazy day or crazy week. I remember the week of March 9th uh as quarantines were coming down here and in Europe. We had a Southeast Asian art auction going on and periodically in my, in my days that week I would go down to a viewing room that had some very kinetic sculptures in it I found them very peaceful and you know it’s incredibly thought provoking since the beauty and power of art to distract and you know engage us and uh you know what, what better place to have those experiences than Sotheby’s. So I would say those are the two things that jump out at me since I started last October.

EB: You get to work in a museum that’s ever-changing which sounds lovely!

CS: Exactly!

EB: Well, hey Charlie we really appreciate it you know congratulations on bringing this great brand to where it is and you’re taking it through a challenging time and best of luck this summer as we head into the peak auction season and we’ll all be watching, thanks so much!

CS: Thank you very much Evan!

End – Operator reads:

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