Good old-fashioned barter can help companies acquire goods without cash and discover new marketing opportunities.
In the 17th century, tuition at Harvard College could be paid for with cows. That is not so surprising, considering that, in colonial America, trading goods for other goods -- furs for rum, or a few beads for a big island -- was standard commerce in the absence of a common currency. What may come as a surprise is that 300 years later, in a vast economy ostensibly fine-tuned by scores of federal agencies, a college education still can be paid for with goods in kind.
The University of Detroit recently joined a formal barter exchange -- one of hundreds that have sprung up across the country. Through the exchange the university swaps sports tickets, seminar fees, part-time admissions, and even the cost of an entire tuition for such operating needs as vehicles and air conditioning. The arrangement is unique in academe, says vice-president of finance Nicholas DeGrazia, but "it works like a charm."
Exactly so, chorus most of the 60,000 mainly small businesses that in the last few years have also become enthusiastic members of barter organizations. Indeed, the use of business-to-business barter -- and the barter industry itself -- is a fast-growing phenomenon that, practitioners foresee, has barely begun. According to the International Association of Trade Exchanges, the barter industry's trade organization, the dollar value of domestic bartering grew 10% to 15% last year, to as much as $350 million.
A reported 65% of New York Stock Exchange -- listed corporations conduct at least part of their business through barter. And one university study predicts that by 1990 as much as 15% of U.S. sales volume will be in barter. Indeed, starting with the simple I'll-do-your-teenth-if-you'll-handle-my-will exchanges that were popular a few years back, now virtually every enterprise imaginable is involved in cashless exchange. Just about the only exception, one professional barter broker says wryly, is the U.S. government. "Why won't they barter?" he laments. "They don't have any money."
The kinds of products available through formal barter run the gamut of industrial America -- and sometimes well beyond. Old standbys, like advertising, radio spots, hotel rooms, and airline passage, are in copious supply. So are hoists, fire alarms, movers, lawyers, clothing, junk, copywriters, signs, secretaries, insurance, stationery, and just about anything else a business could possibly need. And there are a few things most businesses can afford to do without: A restorer of antique slot machines has offered a jewel-encrusted one-armed bandit worth $1 million; another trader has put up a personal submarine. As of this summer, neither had yet found a home.
The major stimulus for the current boom in commercial barter undoubtedly emanates from the otherwise lamentable state of the economy as a whole. Drastic times demand drastic responses. A small rose in a vast onion patch, the concept of barter clearly smells sweet to an entity burdened by inflation, recession, shortages of cash, tight credit, slumping sales, surplus inventory, and the host of other ills that business is heir to.
Barter may not deliver cures, but at least it provides crutches to help an enterprise stumble through to better times. For one thing, in many instances bartering can move sluggish inventory, thus saving painful write-downs. For another, a company can immediately acquire its operating wants without borrowing or spending money, thus preserving cash flow. By utilizing spare capacity without adding overhead, bartering reduces production costs. By filling otherwise idle space and time, it enhances profitability. But perhaps its main attraction is the fact that by joining the barter system a company enters a swap-savvy market of merchandise-hungry customers who almost automatically add new business to a company's coffers.
As modern barter gains acceptance, it also undoes the shackles of past opprobrium. A business known to engage in barter no longer is an outcast in monied circles. And because companies that barter a lot are apt to be scrutinized by the Internal Revenue Service, commercial barter is not the haven for tax evaders it once was. (All transactions, whether business or personal, are treated for tax purposes as if they were performed on a cash basis at fair market value.)
Right now bartering is enjoying its finest hour since the deal between the Manhattan Indians and Peter Minuit. Orchestrating the trading frenzy in large part are three major bartering companies, which together sponsor about 190 of some 300 trade clubs and independent match-makers around the country. These companies perform several functions -- some, like any for-profit enterprise, self-serving. Primarily, a trade club acts as a bank, servicing deposits and withdrawals of goods and services rather than of cash. It is also a broker or sales agent, finding customers for members' and clients' products. Many act as principals in direct competition with their members, buying merchandise, marking it up, and offering it for trade in the system. They can also perform as purchasing agents, scouring lists for, say, office equipment, and as ad agencies, swapping for media space.
As more businesses discover barter, more revenues flow to barter clubs through fees and franchise royalties. The country's largest club is privately held, 12-year-old Exchange Enterprises International, in Salt Lake City. In 1981, the company's 65 offices (most are franchised, but a few early entries are fully independent licensees) traded about $150 million worth of goods and services through about 30,000 members. According to its co-founder and president, Gaylen Rigby, Exchange Enterprises is adding new offices at the rate of two or three per month, and expects to barter more than $200 million worth of goods and services this year. Many offices exceed $1 million a month and, Rigby confidently claims, can keep up the pace "forever."
Close on its heels is six-year-old Barter Systems Inc., in Oklahoma City, with some 25,000 clients in 66 franchised barterships. Barter Systems also expects to exceed $200 million in dollar trading volume in 1982, double last year's total. Third-ranked is Business Exchange International Inc., in North Hollywood, Calif., the only such enterprise so far to go public (Nasdaq symbol: BXBX). Business Exchange boasts 68 franchises, a 66% rise in revenue for 1981, and a doubling of per-share earnings to 25?.
