Even though Ron Giesler, 42, lost his job
wiring oil rigs three weeks ago, the Seabrook, Texas, resident is still
working as an electrician. He's just getting paid in trade: laptops,
computer parts and other used goods.
When Christine Rietsch, 41, of Fridley, Minn.,
had her hours cut, she got creative so her two children could have a
merry Christmas. She drew a portrait of a man's wife and son and
received the Guitar Hero video game in return.
Giesler and Rietsch are among a growing number
of people turning to bartering to help them survive the recession. In
barter, people trade goods and services without exchanging money.
Barter "absolutely thrives in bad times," says
Roger Staiger, a professor at Johns Hopkins University's business
school. Last month, a Denver developer asked Staiger for help
restructuring a loan. Lacking cash, he gave Staiger a Colorado ski
trip, and the developer's wife is designing his Web page.
"This is part of the underground economy that
does not contribute to the GDP (gross domestic product), but it
absolutely contributes to helping people and fostering trade," he says.
Giesler and Rietsch both use Craigslist. Giesler
has done six barters with homeowners who need electrical work. He sold
a laptop he received to help with the mortgage. Rietsch, a nurse, has
done a variety of trades, such as trading a table for a chair. "If
you're able to give somebody a service or good they're looking for, it
saves both of you money that can go towards bills or food or gasoline,"
she says.
On Craigslist, postings in the bartering section
were up 100% between January 2008 and January 2009, says spokeswoman
Susan MacTavish Best. "Bartering is particularly popular in areas that
have been hit with foreclosures," she says.
U-Exchange.com, a website that connects people
who want to swap and trade, had nearly 1.1 million page views between
mid-January and mid-February, says John Moore, founder of the site.
During the same period last year, there were almost 362,000.
Businesses also barter. The Gulf Coast Trade
Exchange has 500 members from Gulf Shores, Ala., to Destin, Fla., who
earn credit for providing goods and services to each other.
"We have been getting lots of calls," says owner
Fran Crumpton. "People are more concerned about the bottom line and
their future."
This following article was in Business Week - November 11,
2008
Barter Exchanges Catch On as Credit Tightens
Small businesses find that trading for goods and services not
only conserves cash; it can also substitute for borrowing and rack up savings. By Stacy Perman
Shawn Cressman, president of Cressman's Lawn & Tree Care, the business
his father started 33 years ago in Bethlehem, Pa., has occasionally engaged in
bartering with other outfits over the years. But transactions were usually
informal and not necessarily directly tied to the company's bottom line.
These days, though, Cressman sees bartering as a significant way to reduce
cash outflow. Last fall he joined the Stroudsburg (Pa.) Merchants Barter
Exchange, an association that coordinates and organizes trading of products and
services among its more than 10,000 business members. In September, when the
transmission blew on one of the firm's trucks, Cressman turned to the exchange
and bartered for a replacement. "That would have cost between $1,500 and $2,000,
and that was not in my budget," he says. He also bartered to acquire a $4,000
piece of stone-crushing equipment. "I probably wouldn't have bought one this
year," he says. "It would have had too much of an impact on my cash flow." But
as a result of strategic bartering, Cressman estimates he has been able to save
about $6,000 total so far this year.
In recent years, bartering has gained currency as a relatively easy path for
small outfits to attain goods and services without having to dig into their
coffers. It has also become a successful channel to attract new customers and
expand one's business. According to the most recent numbers compiled by the National Association of Trade Exchanges (NATE) in Mentor, Ohio,
some 400 barter exchanges in the U.S. and Canada generate transactions worth $4
billion a year.
On the Upswing
And now, with banks cutting back on credit lines or shutting them down
altogether, the use of barter has gained renewed momentum. Notably,
Thailand, the world's largest rice exporter, last month announced it planned to
barter rice for oil from Iran, one of world's top 10 rice importers. For small
businesses, ramping up their own use of barter is a strategy that allows them to
reserve cash and still expand operations at a time when credit lines have yet to
thaw.
Tom McDowell, executive director of NATE, says he has seen a 10% to 12%
increase in new clients joining organized barter exchanges. "Suddenly, [business
owners] were running into different obstacles, and they started looking for
other avenues for resources, not just credit," he says. "The interesting thing
that is happening in this economy is that businesses still have inventory and
capacity. They still have expenses. What they don't have is customers."
Barter exchanges (BusinessWeek SmallBiz, 4/16/08) are fee-based membership groups. Typically,
barter dollars are issued when a member performs a service or offers a product
that can then be used to purchase goods or services of another member within the
exchange. (The exchange receives a commission on the "purchase" side of the
transaction.) Most exchanges work on a 50-50 cash-to-barter system, while
others, such as Merchants Barter Exchange, operate as a 100% barter trade
system. Most offer lines of credit that can be used to snap up a host of items,
from carpet cleaning services to office supplies to large equipment.
A Way to Get Credit
Merchants' founder, Steve Bolles, says membership in his eight-year-old
exchange, which has offices in 30 states, has tripled this year. As the
financial situation remains bleak, Merchants continues to ramp up clients. "Just
18 months ago, when we would go and talk to business owners about signing up,
they would say, 'We don't need to talk to you.' Now everybody gives us an
appointment." A strong inducement: "Everyone we sign up gets a line of credit
right away," Bolles says.
"Most people are looking to conserve cash," says Ralph Sigler, who owns
Carolina Packaging & Supply in Raleigh, N.C., and belongs to two different
exchanges. "We started bartering about 12 years ago. The way we were growing, it
made sense to substitute barter dollars for cash dollars." Sigler says he
bartered to obtain everything from security system installations to letterhead
and envelopes. "I've saved anywhere from $20,000 to $25,000 a year by bartering,
and I've also taken on a lot of new accounts."
Bartering serves as another avenue to help keep businesses afloat. "I would
say my bartering has gone up 20% in the past six months," says Mike Cody, owner
of Chip & Crack Windshield Repair in Garner, N.C. "At first I used it for
hotel stays and gifts to employees." Now he says he has begun to barter to
obtain equipment for his business instead of having to spend cash. "If I were to
make a guess, I'd say that I've saved over $1,000 this year."
"Eventually we will see a shift in thinking," says NATE's McDowell. "What
will happen is that people who were reluctant to use the credit line, or used it
sparingly, will see the tremendous credit crunch and will look for new
resources. They will find that they can use trade exchanges."
Perman is a
staff writer for BusinessWeek.com in New York.
