Why the secondary channel has become an increasingly important part of our business—and what it means for the rest of the industry
Sometimes it seems like another day, another record set at auction.
The sky-high prices that once sent shock waves through the trade have become almost commonplace, with records regularly falling like dominoes. This past year alone, in April, a 28 ct. D internally flawless diamond earned a record per-carat price ($239,352) at Sotheby’s Hong Kong. A month later, in Geneva, Christie’s sold another D flawless—this time, a monster 101.73 carater—and it, too, set a record: $26.7 million, the most ever paid for a colorless stone. That record was toppled just five months later, when Sotheby’s Hong Kong raked in $30.6 million for a 118 ct. D flawless oval on Oct. 7. And on Nov. 13 came the most impressive record of all, when the 59.6 ct. fancy vivid Pink Star sold at Sotheby’s Geneva for $83 million, setting a new auction record for any diamond or jewel.
“We keep seeing these record prices,” says Rahul Kadakia, head of Christie’s New York jewelry department. “We now see $20 million for one piece. That used to be what we made for the entire sale.
“When we first sold a red diamond for $1 million a carat, that price per carat was an unheard of number. It stayed a record price for many years,” he adds. “It’s only over the last five years that $1 million a carat isn’t so impressive anymore.”
But the auction business is booming even beyond the headline sales. Sotheby’s worldwide jewelry sales totaled $460.5 million in 2012, the highest total in the company’s history, with 72 lots selling for more than $1 million each. This year seems on track to set another record, says Gary Schuler, head of Sotheby’s New York jewelry department. Christie’s 2012 jewelry sales were $574.5 million—that’s slightly below the prior year’s $600 million, but 2011 figures were goosed by the blockbuster auction of Elizabeth Taylor’s jewelry. All told, the two main houses now sell more than $1 billion in jewelry a year. “The auction market has become one of the biggest sales channels in the jewelry industry,” Kadakia says.
Denis Hayoun Diode Sa Geneva
On Nov. 12 at Christie’s Geneva, The Orange sold for $35,540,612, setting a world record price per carat ($2.4 million) for any diamond sold at auction.
And it’s become so hot that there’s now an increasing number of repeat sales. Take the 50.01 ct. rectangular-cut D color diamond that Laurence Graff paid $8.3 million for at Christie’s last December. The London dealer bought the same stone, from the same house, for $4.2 million in 2005—suggesting it had been through several interactions in between.
“That’s a nearly 100 percent increase,” says Kadakia. “You tell me any area of the investment world where people are making that kind of profit.”
Adds Schuler: “I think the auctions have somehow caught lightning in a bottle.”
So what’s spurred all this auction action? Experts say it’s been a combination of greater publicity, an increase in worldwide wealth, and phenomenal luck in scoring some great items.
As with any kind of retail endeavor, auctions begin with product. And the main houses—Christie’s and Sotheby’s, which between them have more than 400 years of history—have landed some spectacular jewels during the past few years, from the 101.73 ct. D flawless Winston Legacy, to the Beau Sancy, a historic 34.98 ct. gem once owned by French, English, and Prussian royalty to, most famously, Taylor’s blockbuster collection of baubles.
“The auction houses aren’t taking ordinary stones,” says Russell Shor, senior industry analyst for the Gemological Institute of America. “They are taking the biggest and the top-quality stones, and those are rare, and they usually have buyers. If you want a 50 ct. D flawless, you can’t go around the corner to get another one. If you want one, you have to bid on it there.”
But getting such rare items isn’t easy. “We have these wonderful personal relationships with bankers, lawyers, private collectors,” Schuler says. “It’s all about the relationship and brand awareness.”
And let’s not forget a proactive approach. “If you have a mega-jewelry collection, they know who you are,” Shor says. “They are always knocking on your doorstep, saying, ‘If you ever want to sell…’?”
And on Nov. 13 at Sotheby’s Geneva, The Pink Star sold for $83 million—a record for any diamond or jewel.
Sellers are drawn to the auction market in part because they get high prices for their products—which generally also are accompanied by high fees for the auction house. But Schuler says the houses’ secret weapon is transparency.
“We are like your partner,” says Schuler. “The more you make, the more we make. People like to be able to say, ‘If it sells for $1 million, I’m going to receive X amount of dollars and I know up front what my check is going to be.’ Executors of estates in particular love that.”
Big auctions also regularly draw the biggest buyers, who, increasingly, hail from all over the world. For a long time, Asian bidders dominated the auctions. But Schuler says in 2012 Sotheby’s drew buyers from 80 different countries.
“The auctions have become major affairs,” says Kadakia. “They used to be nice little auctions with 30 dealers. Now it’s become huge and international.”
All of which reflects larger trends, Shor notes: “In the last years, the world has gotten a lot more wealthy. There are a lot more Russian and Middle Eastern billionaires.”
Shor says individual bidders are now a major force at auctions, which for a long time were geared mostly toward dealers. And while some of these “privates” are collectors who just like to own rare gems, a few view them as hard assets that can either appreciate or guard against political instability. Others seem to simply enjoy the publicity that auctions bring.
“If someone wants a high profile, it’s a way to get yourself on the map,” Shor says. “Graff is a guy who likes the spotlight. We always hear ‘Graff bought this, Graff bought that.’ You buy something in an office, no one knows. But buy it at the auction houses, it’s up on all the blogs.”
Christie’s Images Ltd. 2013
This 28 ct. D flawless diamond sold in April for $6,940,822, setting a record per-carat price of $239,352.
Because they sell such unique items, the auction houses mostly are viewed as their own animal, and not as a signpost for the larger market. (In December 2008, three months after the financial crisis, when the overall diamond market was on its knees, Graff paid a then-record $24 million for the grayish-blue 35 ct. Wittelsbach Diamond, which he soon recut to 31 cts.) And yet the audiences at auctions generally include local wholesalers, who aren’t there to bid but to get a sense of prices.
The auction houses “definitely reflect the market in larger stones,” Shor says. “But that doesn’t always trickle down to ordinary goods. If someone sells a fancy vivid blue for $1.3 million a carat, that doesn’t mean a quarter-carat diamond will ride on its coattails.”
When auctions first became a real force in the jewelry market in the 1980s, some retailers feared they were stealing market share. Still, auctions generally limit themselves to the best of the best and there are so many alternate sales channels now that auctions are the least of independent retailers’ fears. Some have even taken advantage of them: Phoenix retailer Al Molina sold the 76.02 ct. D-IF Archduke Joseph Diamond, which he owned for many years, through Christie’s Geneva in November 2012.
Many feel that the sales—and the publicity they now regularly generate—help the jewelry category in general, by reinforcing the message that diamonds and colored stones are wanted and desirable and by educating consumers about things such as fancy-colored diamonds.
“There is no doubt the Duchess of Windsor sale [in 1987] really created a yen for jewelry around the world,” Shor says. “It had a huge coattail effect. It was essentially free advertising for the glitz and glamour of jewelry.”
The same may be said of the Elizabeth Taylor sale 24 years later as well as for every time another auction record falls.
Courtesy of Sotheby’s
This 118 ct. D flawless oval set another colorless stone sale record with its $30.6 million price on Oct. 7 at Sotheby’s Hong Kong.
“The publicity that we are able to gain for these sales is remarkable,” says Schuler.
“They are on the Internet, on social media. We are very much in fashion these days.”
But for how long? When he looks to the future, Schuler admits that he has no idea how long the auction house’s current hot streak will last.
“I don’t see it ending anytime soon,” he says. “All markets are cyclical and I have been here for long enough that I imagine at some point there will be a lull. But we have had a nice run from 2009 to now. There will always be people in the world with disposable income who want to buy the best of the best.”
Still, there may be a little more competition on the horizon. While Christie’s and Sotheby’s remain on top of the heap, Shor says other auction companies are beginning to make their voices heard.
“A couple of other houses have started to chip away at Christie’s and Sotheby’s,” Shor says. “Bonhams recently had some pretty high profile sales, which you didn’t see two or three years ago.”
And, of course, online is a growing factor. Whereas in the past, bidders who couldn’t attend a sale traditionally participated via phone, today a growing number of buyers bid and watch through live online feeds. And Christie’s just announced its first online-only jewelry sale—featuring mostly moderately priced pieces. Kadakia says he is interested in doing more.
Courtesy of Sotheby’s
This 101.73 ct. D flawless gem earned $26,746,541 on May 15 at Christie’s Geneva. It held the record for a colorless stone sale for a full five months.
“The Internet is the way forward for the young collector,” he explains. “It’s kind of a school for them.”
Yet for true auction aficionados, nothing beats the excitement of being there in the heat of the moment, witnessing a bunch of big spenders vie for a prized item, with no certainty as to who will win or how high the price will go.
“It’s like a baseball game,” says Shor. “If it’s a good game, when you get the mega-buyers going against each other, it’s like the seventh game of the World Series. You wouldn’t get that kind of ambience online.”