pursuits

Sotheby's Offers Employees Voluntary Buyouts to Cut Costs

Updated on
  • Auctioneer sold record $1.1 billion of art in 10 days
  • Company says it may turn to layoffs if not enough volunteers

Sotheby’s is offering employees voluntary buyouts to cut costs after a drop in third-quarter revenue grabbed more attention from the company’s investors than its largest ever semiannual auction season.

The auction house told employees in an e-mail Friday that if not enough employees make use of the buyouts, it may have to resort to layoffs. Sotheby’s didn’t say how many jobs it plans to cut.

“I certainly understand that announcing a cost reduction program right after two weeks of dazzling sales may be unexpected,” Tad Smith, Sotheby’s chief executive officer, said in a memo e-mailed to staff on Friday and obtained by Bloomberg News.

Shares Slumped

Shares of Sotheby slumped as much as 16 percent this week after the firm reported a 9 percent decline in third-quarter revenue and said the middle market had become sluggish. The company just completed $1.1 billion art auctions, boosted by the collection of
A. Alfred Taubman, Sotheby’s former chairman who died in April.

The record sales came at a cost. The auction house issued the biggest single guarantee of $515 million to win the Taubman art trove. Sotheby’s said on Nov. 9 that it won’t know if the collection was profitable until 2016, cutting its fourth-quarter outlook.

Sotheby’s fell 3.3 percent to $29.01 at 4 p.m. in New York, bringing declines this year to 33 percent.

Head Count

Sotheby’s earlier this week reported margins that missed analysts’ expectations, and said revenue declined, in part, because middle-market buyers are more selective.

“Seventy-five percent of their cost structure is fixed and most of it is head count,” Kristine Koerber, a senior analyst at Barrington Research, said in a phone interview on Nov. 11. “They can quickly adjust their cost structure.”

Smith, who became CEO in March, said in the memo that Sotheby’s “is not as efficient a company as it could be.” It would benefit from a lower and more flexible cost structure and a “more focused organization with clearer lines of responsibility and accountability,” he said.

‘Attractive’ Opportunity

Management is giving staffers “an attractive economic opportunity to volunteer to resign, should they wish to do so,” Smith said in the e-mail.

Eligible employees have until Nov. 30 to submit an application, according to the document describing the buyout program. Union employees aren’t eligible to apply, according to the document.

“It seems short sighted to make it a blanket letter including the specialists who are the essential money makers,” said Wendy Goldsmith of London-based Goldsmith Art Advisory and former international director of 19th century European art at Christie’s. “There’s a risk losing the wrong people.”

Sotheby’s can decline an employee’s application “to ensure that personnel necessary to the business operations are retained,” according to the document.

More Success

In its 2014 annual report, Sotheby’s had 1,550 employees, with 606 in North America and South America, 502 in the U.K., 230 in continental Europe, and 212 in Asia.

“We elected to begin limited cost reduction with voluntary separation programs that enable staff who choose to leave to do so with enhanced benefits,” Lauren Gioia, Sotheby’s worldwide director of communications, said in a statement Friday. “We look forward to entering the promising new year fresh, optimistic, and ready to invest to realize even more success.”

Sotheby’s had strong sales in New York and Geneva this week. The Nov. 11 evening auction of contemporary art was led by Cy Twombly’s abstract painting that fetched record $70.5 million and Andy Warhol’s “Mao,” sold by billionaire Steven A. Cohen, that went for $47.5 million. Earlier in the day, Hong Kong billionaire Joseph Lau paid 48.6 million Swiss francs ($48.5 million) at Sotheby’s in Geneva for a 12.03-carat blue diamond, the most ever spent on a gem at auction.

“Sotheby’s costs of doing business – increased staff, more expensive catalogue production, huge marketing and promotional costs, etc. – have to be balanced against the declining revenue from commissions,” said David Nash, co-owner of Mitchell-Innes & Nash gallery in New York and former head of Impressionist and modern art at Sotheby’s.

(Updates with details on buyout eligibility in 11th paragraph.)
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