How barter works in million-dollar deals
An emerald-and-crimson talking macaw, an old motor scooter propped against the receptionist's desk, and a deliveryman dropping off a four-foot stack of cardboard boxes stamped ''BATTERIES.''Skip to next paragraph
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This must be the place.
The eclectic lobby of Atwood Richards Inc. is a window on the business conducted in the offices beyond. For this is the Park Avenue home of the oldest and largest corporate-barter firm in North America.
With a $1 million minimum, the 27-year-old barter giant makes economy-size trades only, but here and there are vestiges of old trades. For instance, when the Uniroyal Company had several thousand Keds sneakers to unload, it dropped them at Atwood's doorstep. Or when Resorts International wanted to fill a few thousand vacant hotel rooms, it traded reservation commitments for sporting goods (for promotional use), linen, and carpeting in Atwood's stock.
Typically, barter appeals to a company for several reasons:
* To reduce inventory that isn't selling.
* To get a foot in the door with a new company.
* To boost production levels by tapping new markets.
* To reduce cash outlays.
* To have another method of collecting bad debt.
In the underground economy, swaps are often ways of trying to avoid taxes, but legally a barter is simply a sale without cash, and taxes must be paid. A recent Internal Revenue Service regulation requires that the records of barter exchanges be turned over to tax examiners each year.
Corporate barter is the big brother to some 500 local barter exchanges or clubs in the United States. Most have sprung up in the last five to seven years to coordinate the trading of goods and services of small businesses.
A printer, for instance, may produce menus for a French restaurant in exchange for meals. But maybe the printer can dine on only so much haute cuisine. Out of the $200 bill, the printer opts for $100 in meals. The rest is credited to the printer's barter account. He may decide to use his barter credit later for $100 of ink or paper from another exchange member.
In addition to annual dues, the member businesses pay a transaction fee to the exchange for setting up the deals and keeping track of trading credits. At Atwood Richards, things are run a little differently.
''Atwood is a principal, not a broker. We actually take a risk position,'' says Robert F. Foth, senior vice-president of operations. ''We buy the inventory. We buy and sell for our own account.''
Down the hall from Mr. Foth's office is a display case stuffed with souvenirs of Atwood's bartering: a gold box labeled Bill Blass chocolates, a pair of hockey gloves, golf clubs, and a Bally video game unit, to name a few ''trophy'' items. In fact, just over half of the $500 million in trading Atwood did in 1984 was in consumer products and advertising time.
But the showcase does not hint of a new direction in corporate barter. Four years ago, Mr. Foth estimates, just 10 percent of Atwood's trading was in industrial goods - steel, tin, rubber, and heavy machinery. Now he estimates that trade with so-called ''rust belt'' companies has grown to 45 percent of the business.
Barter tends to flourish during recessions, when inventories are high and cash short. But industrial production also drops when the economy lags. Seeing an opportunity, Atwood began buying production time from heavy industry.
''At the time steel firms were operating at 25 percent of capacity. That's a painful number,'' Foth comments. ''They're higher now - up to about 55 to 60 percent capacity, but that's a reduced capacity. They've closed some plants.''
''Now the manufacturers (working with Atwood) can make products with the time they're not using and sell them to us. . . . And we now have a position with a steel or rubber company where we can say, 'Hey, we have another client who needs this quantity and type of steel. Can you meet their delivery schedule?' ''