Wine Auctions Feel Recession's Squeeze
After four years of big sales and jaw-dropping prices, auction lots are selling at discount prices, if at all
Six months ago, Acker Merrall & Condit held its first wine auction in Hong Kong and made a big splash. The May sale was part of a rush of auction houses into the Asian city, just a few months after the local government eliminated duties on wine. While the American economy was starting to feel the pain of the financial crisis triggered by subprime lending, wine auctions seemed immune. At Acker's sale, a case of Domaine de la Romanée-Conti Romanée-Conti 1990 sold for a record $235,950. But on Nov. 15, at the house's second Hong Kong sale, an identical lot sold for just $137,359.
The bears have arrived at wine auctions. After defying the economic downturn for months, the market has finally succumbed to the world financial slump. Sale prices of collectible wine had more than doubled in value since the boom began in 2004, according to the Wine Spectator Auction Index, but the meteoric rise came to an abrupt halt in October, a month in which the S&P 500 experienced its worst weekly drop in 75 years and trillions of dollars were erased from the value of global equities. Prices of rare wines—especially best sellers like Domaine de la Romanée-Conti and Château Pétrus—have fallen by double digits in the past few weeks as the financial markets continue to slide and unemployment rises.
"Prices have to become realistic," said Jerome Zech, CEO of WineBid.com, a leading online auction site. "We knew this wasn't sustainable."
While the auction index had seen a slight decline in the first half of 2008, collectors hoped that new bidders in overseas markets and enthusiasm for rare wine might keep the market afloat. But sales turned sour in the past month. Percent-sold rates (the percentage of lots sold at an auction, a reliable barometer of the health of the wine-auction market) were hovering around 94 percent as recently as September, but declined precipitously after that. At nine commercial auctions conducted between Oct. 25 and Nov. 22, the average rate dipped to 64 percent. At the NYWinesChristie's Nov. 21 sale, just 31 percent of the items sold. (Hart Davis Hart did manage a 99.3 percent-sold rate in early November, and Zachys registered 89 percent.)
Pricewise, in eight of the past nine auctions, the aggregate plunged below presale low estimates. Approximately 78 percent of the realized sale prices tracked by the auction index in that period fell below average sale prices from the third quarter of 2008.
Much like Wall Street, the wine record book has taken a major hit. In September at Hart Davis Hart, a case of Château Lafite Rothschild 1982 brought a whopping $54,970. But Nov. 1, Lafite '82 was selling at $22,705. At Zachys on Nov. 6, a dozen bottles of Henri Jayer Vosne-Romanée Cros Parantoux 1999 fell 58 percent, to $16,800. Stellar lots that would have attracted heated bidding a few months ago fell flat. At the same Zachys sale, a case of Château Mouton-Rothschild 1945, offered at $185,000 to $300,000, failed to find a buyer. At Sotheby's on Oct. 28, four cases of DRC Romanée-Conti 1990 estimated at $750,000 to $1,200,000 went unsold.
The downturn was not isolated to New York. At Zachys' October auction in Hong Kong, five assorted cases of DRC went unsold, as did cases of Pétrus from the 1990, 1998, 2000 and 2003 vintages.
How did collectible wine lose its recession-proof standing? Apart from global economic fears, the vast number of layoffs in the financial sector (traditionally the backbone of wine-auction markets) and a decline in year-end bonuses drained the pool of buyers. Charles Curtis, head of Christie's North American wine department, said that the strengthening of the U.S. dollar against most world currencies had decreased foreign buying, which had kept the market aloft even when the mortgage crisis had begun hurting American wallets. John Kapon, president of Acker's auction division, said that many regular buyers, especially the trade, were still sitting on the sidelines while active buyers are becoming more selective.
The hard times aren't limited to the big auction houses either. Some WineBid.com customers have recently complained that the Internet auctioneer has made its sales policies more restrictive, forcing customers who consign their wines to sell them at lower reserve prices.
Zech denies that there has been any change in policy, but says the customers have to accept that lower prices are now a fact of the market. "Our reserve pricing is based on a program that uses pricing and sales data from past auctions. We've always had some flexibility in setting reserve pricing—and in the past that allowed for higher prices—but we cannot accept consignments that are priced beyond current market reality," Zech said. "We're just trying to be honest with customers."
WineBid.com isn't the only auctioneer reevaluating prices. Going forward, auction houses are revising their estimates across the board. "Collectors are clearly intent on buying wine at more reasonable prices, and consignors will have to accept a new reality," said Jamie Ritchie, director of Sotheby's North American wine department. Ritchie expects estimates and reserves to drop 10 to 30 percent.
Paul Hart, president of Hart Davis Hart, echoed that. "Price adjustments will be around for some time. This is now a collector's market and many bidders who had been waiting for a correction in prices are returning to the salesroom."
There's a saying in auction circles that bidders vote with their paddles. Clearly, collectors won't pay yesterday's prices for today's wine. How deep the correction is may depend on the global economy as a whole.
