Press Coverage

The art of good bartering

Alicia Clegg 10 Oct 2012

With his twins about to start middle school, Brian Petro, owner of Bright Productions, a Californian web development business, faced a dilemma: how to pay for their education without draining the family finances. His solution? Barter.

A month or so on, he says, his sons are doing fine. The school is happy too. In lieu of fees, Mr Petro is redesigning its website and has procured $1,000 worth of art materials for the school by bartering his services with a local store: “Bartering allows us to go on vacation, maintain our cars better and educate our kids privately.”

Mr Petro, who has a blog, Barterfanatic.com, is not a lone enthusiast. Businesses have always bartered, often as a way of overcoming liquidity problems or bypassing currency restrictions. But according to the International Reciprocal Trade Association, a US-based body, the recession has encouraged more companies to offset the effects of shrinking order books and tight access to credit by putting excess capacity to use.

For tax purposes, both buyers and sellers need to assign market values to what they buy and sell, as in a normal cash transaction.

The simplest barters are straight swaps: a printer might provide an accountant with stationery in exchange for auditing the accounts.

One big growth area has been in barter deals facilitated by intermediaries. Where smaller businesses are concerned, barter is typically channelled through barter exchange companies operating a system of virtually 100 per cent trade credits. The exchange notifies its membership that empty hotel rooms, unsold stock or unbooked billable hours, for instance, are available to buy. The exchange typically charges buyer and seller a cash transaction fee of 5-6 per Countries where the recession has boosted exchange-based bartering, says IRTA, include the US, parts of Asia, Britain, the Netherlands, France and stricken eurozone states such as Spain, Italy and Portugal.

Corporate barter companies, which specialise in helping big companies realise value from goods they are struggling to sell, have also expanded. The client typically swaps slow-selling stock or an unwanted asset with the barter company for trade credits, which part-purchase goods or services, such as media space or travel.

Specsavers, the Guernsey-based optical group, obtained advertising, travel and print services by using credits earned from exchanging end-of-season sunglasses and unwanted stock with US-based corporate barter company Active International.

“[Bartering] turned an ageing stock asset into something that was a cash equivalent and . . . helped us to advertise more cost-effectively,” says Michael Parker, head of commercial projects.

Barter is clearly handy for finding a buyer for slow-moving stock. However, David Hillier, professor of finance at Strathclyde Business School, compares barter to “a blood transfusion” that keeps a business alive until it has rebuilt the muscle to insist on cash. “Barter is an economy of last resort, not one you want to target.”

Why barter rather than discount for cash? One advantage is that by accepting barter credits, companies may be able to earn extra revenue from price-conscious consumers, while continuing to charge the full cash price to others. Andrew Taylor, owner of the Thai Rack restaurant in Gerrards Cross, near London, belongs to Bartercard, an Australia-headquartered barter exchange. Providing meals in return for barter credits – which he traded for holidays and a car − helps him fill empty tables on quiet evenings, giving the impression that the restaurant is always busy. “[Passers-by] aren’t going to have any idea that [the barter diners] are not regular paying customers.”

Other sectors where barter discreetly helps shift slow-moving inventory include automotive and fast-moving consumer goods. In such instances, says Dean Wilson, chief executive of Active’s UK operations, the brand may specify that its stock be sold to a corner shop or overseas to avoid upsetting big customers or trade partners: “That doesn’t affect their deals with [high street retail chains].”

To avoid crowding out cash-payers with customers offering trade credits, businesses may impose restrictions. Mr Taylor does not accept barter credits on Fridays or Saturdays: “We know the chances are [the restaurant] will be full of people paying cash.”

Similarly, media credits may buy cinema or radio slots, but not coveted television or glossy magazine ads. “Bartering helps oil the wheels of commerce [when budgets dry up] . . . but media owners will always take cash before trade credits,” warns Pedro Avery, managing director of London-based media planning and buying agency Arena Media.

To mitigate the downsides – limited liquidity and limited choice – some barter companies are improving their terms. Instead of taking the client’s stock upfront for trade credits, some corporate barter companies, such as Miroma, buy media to a client’s specification and only require it to hand over stock after the ads have run.

While barter companies part-pay media owners with inventory when they can – exchanging cars or conference they want. “Barter companies pay us cash because we only trade on money,” says Spencer Berwin, managing director of the sales division of outdoor advertising company JCDecaux UK.

However, as barter companies get bigger some clients see opportunities to profit from creatively structured deals. Lawrence Hamilton, UK marketing director at Kia Motors, cites a deal in which Miroma procured poster, cinema and press slots for Kia and Kia gave Miroma cars. Miroma bartered the cars with a publisher, in return for tradeable ad space, and the publisher used Kia’s cars as competition prizes to market OK magazine. “Having our cars featured in the competition, which was promoted on TV and OK’s front cover, was effectively free advertising for us,” he says.

Ultimately, even experts admit that barterers must keep their wits about them. Some years ago Marc Boyan, chief executive of Miroma, landed a big barter deal with a well-known condom brand. But joy gave way to gloom as selling the stock, without infringing regulations, proved a nightmare. “We ended up giving them to a charity in Africa,” he says ruefully.


The art of good bartering

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