Barter boom

Nation's Business, March, 1985 by Henry Eason

Barter Boom

A TELEVISION station wanted a new antenna that cost $500,000, but it neither had the cash to spare nor wanted to pay a high interest rate to borrow the money. So it called Attwood Richards, Inc., the country's largest barter firm.

Attwood Richards bought the antenna and turned it over to the station in exchange for $1 million in unsold television advertising time. It then swapped the time to a cash-short manufacturer for $1.25 million worth of surplus digital clock radios.

It traded the radios to a hotel chain at retail value for $2.5 million worth of rooms, food and beverages that the chain anticipated to be excess capacity.

Then Attwood Richards bartered the hotel accommodations to a soap company, which needed the rooms and food for its traveling sales force. Attwood Richards got $500,000 in cash and $2 million worth of slow-moving, highfashion deodorants. The barter firm kept the deodorant for its efforts.

In a strictly cash economy, the station would still be left with a glut of

air time and no new antenna. The manufacturer would have a warehouse full of radios and no new advertising campaign. The hotel chain would have to spend cash for radios in its rooms. And the soap company would have to lay out $2.5 million to shelter and feed its traveling salespeople.

What Attwood Richards did is an example of old-fashioned barter adapted to modern business. Barter is growing phenomenally in the American economy. It is booming faster than statisticians can count. In fact, says barter expert Leo Welt, measuring the volume is impossible because companies rarely disclose publicly the amount of their bartering activity.

More than 500 local barter exchanges have sprung up in the past decade, involving tens of thousands of small and medium-sized businesses. Large companies, particularly those trading extensively abroad, are bartering increasingly. Many have created their own barter subsidiaries.

The barter phenomenon is driven by the high cost of money. Barter gathered steam during the recent recession, when businesses were forced to cast about for new methods of moving products and services. It became easier to barter because of the spread of computerized transactions in which "trade credits' moved like cash. By the end of the recession, barter had become for many firms a marketing device easily adaptable to a booming U.S. economy.

Barter offers real opportunities for small businesses and individual proprietors. Restaurateurs can swap meals for advertising, printing, cleaning services and flowers. Floral shops can barter flowers for meals, advertising, printing and cleaning services. And so on.

In Austin, Tex., a restaurant owner got repair work done on vans he uses for catering, a roll of carpet and pest control services--all by providing meals to Barter Exchange, Inc., clients in central Texas. BEI President Matthew O'Hayer links thousands of small firms together with a computer network.

O'Hayer says electronics has catapulted barter into the modern age and given it the same sophistication as credit card operations. All BEI's transactions are computerized on what the firm calls BarterLine.

The Texas firm plans to push out nationally and internationally with BarterLine. After only three years of operation O'Hayer says he already has "several thousand clients' throughout the country.

"One of the main reasons the barter system died in the first place was because of the valuation problem,' says O'Hayer. "With our network, all clients are assured of receiving full dollar value for goods and services they provide. Computerized barter is the ultimate in electronic banking.'

"Barter is as expansive and exciting and rewarding as your own creativity,' says Moreton Binn, board chairman of New York-based Attwood Richards, which managed transactions last year valued at more than $500 million.

"Like Pavlovian dogs,' says Binn, "we're conditioned in this economy to use a form of payment called cash. It's not an end product. You can't eat cash or wear it. Often, you can get the same thing through barter.'

Binn, who recently lectured members of the Young Presidents Organization at Harvard Business School, says barter is "another marketing strategy.' Most companies, he says, have no workable contingency plan when they cannot move inventory. Frequently, the answer is to trade that inventory for assets a company would normally pay cash to get.

For example, a company making golf clubs and tennis rackets turned over to Binn $4 million worth of sporting goods with the autographs of sports pros whose careers had dived. The same company wanted a major media campaign to sell new products.

Like other Attwood Richards clients, the sporting goods company signed a multiyear agreement to accept trade credits in exchange for the inventory it turned over to Binn. Working with the company's advertising agency and drawing from the resources on what it calls its "buffet table,' Attwood Richards produced an imaginative national ad campaign--all paid for with trade credits.