Phillips, de Pury & Luxembourg

views updated

Phillips, de Pury & Luxembourg

3 West 57th Street
New York, New York 10019
U.S.A.
Telephone: (212) 940-1200
Fax: (212) 688-1647
Web site: http://www.phillips-auctions.com

Private Company
Founded: 1796
Employees: 500
Sales: $223.9 million (2000)
NAIC: 453998 Auction Houses; 453920 Art Dealers

Phillips, de Pury & Luxembourg is the world’s third largest auction house, but lags well behind the much better known Sotheby’s and Christie’s. Established in England more than 200 years ago, Phillips has been based in New York since 2001 and continues to maintain offices in London and other major cities around the world, as well as a salesroom in Geneva, and a gallery and salesroom in Zurich. With Sotheby’s and Christie’s reeling from a price-fixing scandal, Phillips has attempted in recent years to take advantage of the situation to move aggressively into the high-profile art market and transcend its reputation as an essentially British rural concern that handles the contents of country estates and second-tier art works. After some initial success Phillips has stepped back from its aggressive play in the fine arts market.

Birth of an Auction House: 1796

The great auction houses of the world were established in England in the 1700s. Sotheby’s, founded by a Mr. Baker, held its first sale in 1745, auctioning off a collection of books. The house focused on books for many years, gaining prestige for handling the sale of books that belonged to such notable people as Napoleon and Telleyrand. Former midshipman James Christie established his auction house in 1766 and developed a reputation for art sales. It was not until World War I that Sotheby’s set out to challenge Christie’s dominance in art, resulting in today’s well-known rivalry between the two concerns. Phillips was established in 1796 by Harry Phillips, Christie’s former head clerk, a man of ambition as well as flamboyance. Despite lacking the funds to hire a staff or lease his own premises, he was still able to conduct a dozen sales during his first year in business. He also showed a willingness to handle a wide variety of items, from tea services to a saddle mare. Phillips focused on the aristocracy, especially the auctioning off of the contents of their country estates, and became the house of choice in these matters. In fact, Phillips was the only auction house ever to hold a sale in Buckingham Palace. Among the famous estates Phillips handled were Beau Brummel, Marie Antoinette, and Napoleon.

Phillips’s business began to prosper in short order and he was able to open a salesroom on New Bond Street in London’s West End. He displayed an innovative spirit, establishing practices still followed today. To promote important auctions he held them at night following a lavish reception. Harry Phillips ran the auction house until his death in 1840, leaving a highly successful business to his son, William Augustus Phillips. For many years the second generation Phillips ran the business as the sole proprietor, then in 1879 brought in his son as a partner, changing the name of the company to “Messrs Phillips & Son.” Three years later his son-in-law Frederick Neale joined the company and the name was amended to “Phillips, Son & Neale.” Control of the auction house passed out of the hands of the Phillips’s family in the 1930s when Edwin and Robert Hawkins took over. In 1939 the Phillips’ home of more than 100 years on New Bond Street was destroyed by fire and a new headquarters was established across the street.

Christopher Weston bought the business in the early 1970s. Also in that decade the company returned to its “Phillips” name, while at the same time it finally began to broaden its reach after nearly 200 years of a staid existence. Not only was a regional network established in Britain, Phillips opened offices in New York City, Sydney, and Zurich. Despite these advances under Weston the auction house finally began to garner widespread attention only after he sold his 96 percent stake in Phillips in January 1998 as part of a merger with Foster & Cranfield, another venerable British auctioneer. Established in 1843, Foster & Cranfield specialized in life assurance policies, interests in trusts, and the sale of other financial assets. The resulting enterprise was named Phillips Auction Group and under new management the British provincial network was cut back.

Acquisition of Phillips by LVMH: 1998

Less than two years later ownership of Phillips changed once again, at a time when the major auction houses drew the attention of arch-rival French luxury goods purveyors François Pinault and Bernard Arnault. First, Pinault, who controlled Pinault-Printemps-Redoute, acquired Christie’s in May 1998. Arnault, who controlled LVMH Moët Hennessy Louis Vuitton, responded by attempting to acquire Sotheby’s. When that effort failed, he turned to Phillips a year later and in November 1999 purchased the business for approximately $110 million. His intention of creating a luxury conglomerate and building up the reputation of Phillips in the art world was given a boost a few months later when in February 2000 it was revealed that Christie’s and Sotheby’s were the subjects of a New York grand jury investigation, which was looking into whether the world’s two largest auction houses had colluded on an increase in commission charges in 1992 and 1995. The scandal quickly forced Sotheby’s chairman, Alfred Taubman, to resign. Seven months later Christie’s agreed to pay $256 million to settle the matter, and Sotheby’s and Taubman agreed to pay $326 million.

With trust in Christie’s and Sotheby’s severely shaken, Arnault attempted to take advantage of the opening to compete in the fine art market with Phillips. According to the Wall Street Journal, “Arnault announced that he would cherry-pick only the best art and leave the dross to online auction sites or his rivals. He began spending freely on star paintings, lavish parties and celebrity appearances. At Phillips’ first major sale, actress Sharon Stone strolled the aisles in a red dress, stroking sculptures during the bidding. People close to the company put the amount he is willing to lose to establish the Phillips brand at $250 million.” Despite Arnault’s willingness to spend money, Phillips’ spring sale in New York was not a success. Nevertheless, the perennially third ranked auction house was causing a stir and changing the traditional way the auction world operated. Phillips not only made lavish guarantees of a minimum sale price in order to lure major works of art, it began to buy collections outright. Instead of acting as a middleman between buyers and sellers, it was taking on inventory. Many sellers continued to rely on Christie’s and Sotheby’s, but others, especially estate attorneys with no ties to tradition, were won over by Phillips’ generous terms. The Wall Street Journal reported that “some Sotheby’s executives fret that Mr. Arnault’s real plan is to depress Sotheby’s stock and try again to buy the company. Mr. Arnault has said that’s not his goal.”

With Phillips struggling to reach its targets at its major evening sales, in December 2000 Arnault merged the auction house with de & Luxembourg, a private dealership based in Geneva operated by two former Sotheby’s executives who left in 1997 to start their own business. They advised some of the world’s wealthiest art collectors, including Ronald Lauder, Monique Barbier-Muller, Sammy Ofer, and Rolf and Margit Weinberg. Simon de Pury had been chairman of Sotheby’s Europe and was a trilingual auctioneer, while his partner Daniella Luxembourgh was the former deputy chairman of Sotheby’s Switzerland. The new entity resulting from the merger was named Phillips, de Pury & Luxembourg, with the Geneva dealership continuing its operations as a subsidiary. In addition, the expanded Phillips prepared to open an 8,600-square-foot gallery in Zurich, which was slated to hold four shows a year. The main business of Phillips, according to top management, would be focused on paintings, jewelry, and furniture, the most profitable areas in the auction world. Electing to remain relatively small, the company eschewed the less profitable businesses of Christie’s and Sotheby’s, including books, wines, and even collectibles such as paperweights. While its rivals maintained some 70 expert departments, Phillips chose to operate with about 10 specialties, concentrating on the high end of the auction business, in particular Impressionist and modern paintings, and fine jewelry.

De Pury was named chairman of Phillips and moved quickly to bring in another former Sotheby’s executive to serve as chief executive of a revitalized North American operation in New York. In January 2001 he chose John Block, a senior Sotheby’s auctioneer, who had been vice-chairman of Sotheby’s North America as well as co-chairman of its worldwide jewelry department. In addition to day-to-day responsibilities for the running of Phillips North America, Block was also slated to head the firm’s jewelry department worldwide. To assist him in this endeavor, he raided Sotheby’s, taking several jewelry experts with him to Phillips. The New York operation was later strengthened in 2001 with the opening of a new headquarters at 3 West 57th Street in midtown Manhattan, after Phillips had spent almost 20 years at an Upper East Side address. The new home of the auction house, which was conveniently located close to the 57th Street headquarters of LVMH, was a 54-year-old, 12-story limestone building, for which Phillips would be the sole tenant. Because the ground floor had been formerly occupied by a bank, it featured 16-foot-high ceilings without columns, a perfect set-up for Phillips’ main auction salesroom, able to seat close to 300 people. Smaller salesrooms located on the third and fourth floors were able to seat 150. Moreover, the new location permitted Phillips to have all of its salesrooms, exhibition spaces, meeting rooms for clients, and executive offices all under the same roof. It was clearly the flagship office of the auction house and Phillips subsequently moved its headquarters from London to New York.

Company Perspectives

Phillips specializes in the sale of Impressionist, Modern, Contemporary, American and Swiss Art, Magnificent Jewels, Magnificent Watches, European Furniture, 20-21 st Century Design, and Photographs.

2001 Spring Sale a Disappointment

While Phillips completed the move to its new home it was able to conduct sales in the renovated sections of the 57th Street location. It also continued its practice of extravagant spending in order to acquire market share, very much like a dotcom startup. In February 2001 Phillips purchased an important collection of 19th-century paintings and drawings from Berlin-based dealer Heinz Berggruen. Included were five works by Cezanne and two by van Gogh, the star of the collection being Cezanne’s “La Montagne Ste. Victoire.” Phillips then used the acquisition as the foundation of the all-important New York spring sale of Impressionist and modern art, which many saw as a major test for the flashy upstart. Also included in the sale were two highly prized Renoirs owned by financier Henry Kravis. His decision to entrust Phillips rather than Sotheby’s, on whose board he sat, became the talk of the art world and continued to generate buzz about the ambitious number three auction house. Clearly the Kravis decision was simply based on the high guaranteed price that Phillips offered, prompting many to criticize Phillips for inflating prices. De Pury maintained that the firm was simply doing what the other houses had practiced for years. In the end, however, the spring sale fell far short of Phillips’ expectations, by more than $40 million according to the Wall Street Journal, which also speculated that the poor results may have been a “sign of some reluctance among buyers to trust Phillips price estimates given its financial interests in the property.”

Although Arnault’s lavish spending had garnered tremendous attention for Phillips, it also created unusually high expectations that made it difficult for management to portray the spring sale as a positive step for the auction house. Nevertheless, Simon de Pury maintained that Phillips would now be taken seriously in the art world and continued to act on that belief. Shortly after the spring sale he hired a global chief executive officer, a new post for the company, naming Anne Sutherland Fuchs, a woman whose ties to the art world were limited to a trustee position and fundraising for the Whitney Museum of American Art. Her management experience was at The Hearst Corporation’s publishing unit, where she headed women’s magazines and worked closely with LVMH executives who had involvement with women’s and luxury magazines. Like the rest of Phillips’ top-heavy stable of executives, she expressed excitement and confidence over the company’s boutique approach and focus on select categories of the highend art world. Arnault, the man who was bankrolling Phillips’ entry into this rarified world, apparently began to have second thoughts about the cost of gaining a place at the table with the established auctioneers. When he asked Phillips to trim costs and eliminate its generous price guarantees, sellers simply returned to Christie’s or Sotheby’s, his money proving to have only leased a temporary share of the art market.

In November 2001 Phillips initiated a restructuring of its business. The U.K. interests were merged with Bonhams & Brooks, another firm with roots that reached back 200 years.

The Bonhams auction house was founded in 1793 and was the smallest of the four London auctioneers. It specialized in collecting esoterica rather than fine art. Brooks was founded in 1989 as a classic and collectors’ car auction house, Bonhams and Brooks merged in 2000, less than a year before merging with Phillips, which gained a 49.9 percent stake in the resulting enterprise. Phillips’s lower-end art sales were transferred to Bonhams and Brooks, allowing it to focus on its boutique business model. Despite this effort to streamline the business, Arnault was no longer interested in Phillips, and in February 2002 LVHM sold off a controlling interest in the firm to de Pury and other investors.

De Pury quickly moved to replace Fuchs with T. Blouin MacBain, who was a relative newcomer to the art world. Like Fuchs, MacBain had considerable publishing experience; she was the founder of and 14-year CEO of Hebdo Mag Group with nearly 300 publications and over 60 web sites. Perhaps of more importance she knew de Pury from the Hamptons, and according to de Pury, “She’s a very important part of my private life.” She announced that Phillips would be realigned further, with each department acting as its own profit center. Her approach to woo customers away from Christie’s and Sotheby’s was to win them over with extra attention, customer service that bordered on pampering. Many in the industry, however, expressed strong doubts that Phillips, at a time when the supply of art was limited, would be able to procure enough works to sell. With the key New York spring sale of Impressionist and modern art fast approaching, Phillips faced a challenge to cobble together enough property to stock its sale. In the end, the auctioneer was unable to convince art sellers and estate attorneys to trust them with important works and it was forced to cancel the sale, an unquestioned humiliation in the art world and a major setback. Phillips’s bid to challenge Christie’s and Sotheby’s, despite the difficulties endured by both, had simply run its course. According to press reports, Phillips now considered relocating its headquarters back to London.

Principal Competitors

Butterfield’s; Christie’s International plc; Sotheby’s Holdings, Inc.

Key Dates

1796:: Harry Phillips founds auction house.
1840:: Harry Phillips dies and ownership passes to his son, William Augustus Phillips.
1879:: Company name is changed to “Messrs Phillips & Son.”
1872:: Son-in-law joins firm, now called “Phillips, Son & Neale.”
1939:: Longtime London showroom burns down.
1999:: LVMH acquires controlling interest.
2000:: Phillips merges with de & Luxembourg.
2002:: Management-led investors acquire controlling interest.