Amazon.com, Inc. (AMZN)’s Entry Into Art Sales Will Hurt Sothebys (BID)’s Margins

Since 1995, Amazon.com, Inc. (NASDAQ:AMZN) has been synonymous with online shopping. The leading e-tailer has taken on rivals in several areas and dominated. As online shopping grew, Amazon.com, Inc. (NASDAQ:AMZN) also diversified into other areas and continues to have success. The company’s latest entry into fine art should have one publicly traded company worried.

The Art Newspaper has reported that Amazon.com, Inc. (NASDAQ:AMZN) is once again entering the fine art market. Back in 2009, Amazon.com, Inc. (NASDAQ:AMZN) teamed up with auction giant Sothebys (NYSE:BID) in a joint venture aimed at capturing additional high end sales in the art community. That venture turned into a short event as it was eventually closed. Amazon.com, Inc. (NASDAQ:AMZN) will now take its one time partner head on with a new offering.

Amazon.com, Inc. (NASDAQ:AMZN) plans on launching an art retail site that will initially cater to small time artists and art dealers around the United States. Rumors have Amazon charging no monthly fee and instead taking a small percentage (5% to 15%) of final sale prices. This is a smaller rate than Sothebys (NYSE:BID) currently receives for many of its auctions. Amazon’s new venture will most likely be similar to its Amazon Wines business launched last fall.

In 2012, Sothebys (NYSE:BID) saw its New York and London showrooms represent 77% of total auction sales. Despite growing international sales and a small online presence, Sothebys (NYSE:BID) continues to rely on live art sales. In 2012, jewelry and books made up only 10% and 2% of auction sales respectively. The rest of auction sales came from the art industry.

Revenue declined 8% in 2012 and it has already fallen in the 2013 year as well. In fiscal 2012, revenue dropped to $768.5 million. The decline came from a 10% drop in net auction sales. Earnings per share declined to $1.57 as net income fell due to smaller margins. In the most recent first quarter, Sothebys (NYSE:BID) saw revenue decline 3%. The company’s auction commission margin declined to 18.1% from 15.0% in the previous year. Net income also declined to a loss of $0.33 per share versus a loss of $0.16 in the prior year. This decline in revenue and earnings came despite a 23% increase in net auction sales.