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Not Your Ancestors' Barter.

The exchange of goods and services remains mostly local matter, the Internet is taking corporate barter to new heights.

Airline Reservations Network in Orlando, Fla., sold $800,000 worth of airline tickets last year without receiving a nickel of cash. How? Company president Scott Bender says it's because his company embraces barter. "We barter airline tickets for printing, advertising space and employee benefits," says Bender. "Barter boosts our profitability by opening up a whole world of opportunity."

Of course, barter is practically as old as civilization itself, and before the advent of currency was the primary form of commerce. Although "barter" is, by definition, the direct, one-on-one exchange of one product or service for another, the modern incarnation of trading is a little different -- and far more sophisticated.

Today, the majority of business barter deals are facilitated through barter exchanges, primarily as a way to squeeze profit from unsold or under-utilized products or downtime. According to the International Reciprocal Trade Association, more than 250,000 American businesses bartered $9.4 billion in corporate goods and services and $1.5 billion in retail goods in 1999.

There are two types of barter exchanges. Retail exchanges, of which there are over 400 in the United States today, allow mostly small businesses and individuals to trade with each with the exchange facilitating the trade, providing a common currency or "trade credits" and receiving a transaction fee for each trade.

Let's say the owner of a sign painting company needs some brochures printed. Instead of paying cash, he goes to a printer within his barter exchange and pays with trade dollars. The printer doesn't have to spend those with the sign painter. He may decide to eat at a restaurant, seek legal advice for his business or pay his monthly courier expense.

By comparison, corporate barter can involve millions of dollars worth of goods, services and/or raw materials and is primarily conducted on behalf of large companies. The major goal is helping "sellers" obtain cost-of-goods value for their obsolete or excess goods (inventory, under-utilized plant capacity, unwanted real estate, etc). Corporate trade helps minimize loss from perishable goods, reduce inventory storage costs, extend geographical distribution and tap liquid assets. Income from barter is used to finance equipment and capital assets or to offset other business purchases.

World Trading Inc., a Texas-based after-market auto parts distributor, worked with a corporate barter company to trade excess inventory for a 259,000-square-foot distribution center -- a deal worth in excess of $6 million. "We were able to leverage excess product for a major real estate purchase," says David Fleishman, a company principal. "Additionally, we acquired warehouse equipment as part of the deal. It was a win/win situation."

In another deal, Adidas America had excess basketball shoes, but required that they be sold to a customer the company would designate. Media Resources International, (MRI), a corporate barter company, paid Adidas in media credits at the inventory's wholesale value. MRI placed the media on Adidas behalf, leveraging the client's advertising budget by 35 percent and fulfilling the media credits simultaneously with each step of the transaction.

Traditionally, retail barter exchanges were homegrown businesses serving their local communities. Today, most members are still small, service-oriented businesses operating within 20 miles of their home base, says Bob Meyer, editor and publisher of BarterNews. But recently, a handful of Internet barter companies have vowed to transform the barter industry by eclipsing the limitations of size and scope affecting brick-and-mortar barter exchanges.

Barter Trust.com, a recent start-up, wants to transform barter in the same way eBay did for online auctions. The company is pursuing a clicks-and-mortar strategy, acquiring old barter exchanges and bringing them online. In the past year, it has bought several exchanges in the United States, Canada and Mexico. So far, its emerging international barter network has grown to 10,000 members. BarterTrust has done deals with large corporate accounts like TWA and Maytag Corp. and hopes to link both small and large companies

Bringing barter online would not be possible without capital investment and technology. Venture funding has clearly helped fuel the emerging barter revolution; the industry has gained support from large investors and partnering companies, and at least $105 million has flowed into the industry since 1998.

Bigvine, an Internet barter operation located in Redwood Shores Calif., used Silicon Valley funding to pull together a network of 30,000 members for its online barter network, Bigvine.com. It has forged relationships with American Express, which markets Bigvine's service to its own small-business customers, and recently announced plans to merge with Allbusiness, which offers a range of services to small firms. While Bigvine's customer base comprises mainly smaller businesses, it has reached out to larger businesses with excess inventory, recently working deals with Delta Airlines and Starwood Hotels.

"Traditionally, barter exchanges have been unable to facilitate trade between small businesses and large corporations because retail exchanges were simply too small to provide a sufficient outlet for the inventory available from large corporations," says Bigvine CEO Debra Chrapaty. "The Internet has changed that. We've built a huge customer base and a major market for large chunks of inventory from our larger corporate partners."

Solving Inventory Problems

A recent survey by AMR Research found that excess consumer goods inventory will exceed $60 billion in the U.S. and $120 billion globally by the end of this year. Until recently, businesses had few choices for disposing of excess assets. In most cases, they could either donate the products and take a tax deduction or liquidate the merchandise through a traditional liquidator or auction. Using either option, businesses could expect to recoup only 5 percent to 30 percent of the product's original cost.

In the U.S., some 100 corporate barter exchanges help large manufacturers, wholesalers and distributors trade excess inventory. Unlike retail exchanges, like BarterTrust, which primarily serve the small-business market, corporate barter companies typically rake title to customers' excess inventory as well as broker large-scale company-to-company deals. Corporate barter dollar volume in North America exceeded $9.27 billion in 1999, according to the Corporate Barter Council (CBC), a not-for-profit U.S. trade association.

The challenge for corporate bartering has traditionally been the labor-intensive process of matching buyers to sellers. Enter the Internet. ISolve Inc., an online corporate barter exchange specializing in inventory management, provides a full-service business-to-business marketplace for buying and selling surplus inventory and excess capacity. Through its Web site, isolve.com, it serves five vertical markets: health and beauty, automotive, food, general merchandise and salvage.

Through a network of international alliances, ISolve can tap into the global surplus market and fulfill customers' import/export needs. ISolve also has a team of professionals that can visit client companies to identify and evaluate surplus inventory and idle assets and recommend inventory management solutions to help move non-performing inventory off their clients' shelves -- and off their books. ISolve guarantees that any item listed on its Web site will receive an offer within 30 days.

Stuart Kessler, iSolve's chief operating officer, believes the Internet will help corporate barter realize its full potential. What used to take 90 days or more, he says, can be done in a day. "Clients now go to our Web site and see who is in the market within minutes."

Making barter accessible is the easy part. The real challenge will be attracting a critical mass of customers. Online barter exchanges are unlikely to grow as fast as eBay, for example, because bailer is still an unfamiliar, and somewhat suspicious, concept to many businesses. Also, many companies are reluctant to lock up value in special trading currencies or "trade dollars" rather than in cash. Moreover, "online-only" barter sites do not seem to work as well as "bricks-and-clicks" models.

Still, barter companies are banking that a strong track record will draw large corporations away from corporate barter and into their exchanges. Barriers between corporate and retail barter are starting to fall as corporate barter companies, like Icon International, open on-line exchanges and as giants, like Maytag, sign up with BarterTrust. If the challenges of educating a wary corporate community on the benefits of barter can he overcome, online bartering could become a trend to watch.

Steven Van Yoder is a freelance business journalist in San Francisco.

Barter: Done Deals

LUFTHANSA AIRLINES

Lufthansa had 16 years remaining on a lease for 2,000 square feet of retail space at $250 per foot -- nearly twice the then-current market value. Its choice was to keep the space or sublet it and take a 45 percent beating. Icon International took over the space, found a subtenant and with the rental income was able to furnish Lufthansa with advertising time and fuel in amounts that allowed Lufthansa to get the lease off its books.

LIONEL TRAINS

Lionel had already sold closed-out models of toys of Tradewell in exchange for spot television media credit. This time, Lionel had a different problem: excess first-line, fully packaged train sets that were still in the current catalog and on many retailers' shelves. Tradewell arranged for another client -- Dole Food Co -- to use the train sets as incentives for sales force and dealers to help move more Dole products.

NABISCO

Nabisco's Planters Peanuts division had several hundred thousand pounds of bulk, shelled pistachio nuts. Media Resources International determined that the product had a far greater value if packaged (by private label) in one-pound tins. Finding a customer, MRI purchased the nuts, paying in media credits with a substantially greater value. The Media credits augmented Planters' advertising schedules.

SHARP ELECTRONICS

Sharp the electronics manufacturer wanted to reward its top dealers with an incentive program without spending cash. In exchange for surplus inventory, Icon International arranged an incentive travel package on a major Mediterranean cruise line for Sharp's dealers 50 staterooms, 100 passengers.

Source: The Corporate Barter Council
COPYRIGHT 2001 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:exchange of goods and services on Internet
Author:Yoder, Steven Van
Publication:Financial Executive
Geographic Code:1USA
Date:Jan 1, 2001
Words:1637
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