Is Barter Smarter? Here's What the Latest Stats Say

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2005 Has already broken a new barter record for the U.S. of over $24 Billion with three months to go even higher. Interesting data compiled by the North American Barter Associations shows why barter is growing in popularity amongst small business and Fortune 500 giants alike.

Is barter smarter? - Here's what the latest stats say...

Indeed, 2004 was a great year for barter with over $20 billion of barter transactions recorded in the U.S. But as of September 15th the new record mark for barter reached $24.3 billion with still another three months to go - an all time high for the barter industry in America. At it's current pace, the final tally for 2005 is expected to surpass $30 Billion according to the North American Barter Association which has been compiling statistics on North American barter since 1985. The numbers are growing more impressive by the year;

  • Over 80,000 small businesses joined the barter craze in 2005, - a 13.2% increase over 2004.

*In all, some 824,319 American companies bartered at least once in 2005 - so far.

*62% of America's Fortune 500 companies reported bartering in 2005 on a regular basis - up 3.5% from 2004.

*The average amount of a barter transaction in 2005 grew to $16,208 from $12,879 in 2004.

*Of all recorded barter transactions in 2004, 72% involved products and 28% were services.

*There are 1,239 registered barter exchanges in North America but only two of the provide nation-wide and international service.

*Since 1985 commercial barter has been growing an average of 17% per annum.

*There are now over 500 barter exchanges in North America with 97% of them focused on consumers and 3% geared towards commercial enterprises.

*19 countries now utilize barter on a monthly basis – up from 16 last year.

So what's behind the growing barter trend? As usual - money. CFOs across the nation call barter the ultimate book balancer that allows them to preserve their asset base, keep cash-flow highly positive, and never give them the nightmares of unsold or obsolete inventory. From film, to sporting goods, to hotel rooms and building materials, barter can handle almost anything other than mortgages, telephone service, and highly specialized products that have no secondary market. (i.e. custom made cabinets a diamond cutting machine, etc...) Indeed barter allows merchants big and small a sure fire way to collect full retail value for their unsold inventory rather than taking a wholesale tac credit or loss on their ledgers.

Although most Americans have come to know barter through local barter exchanges focused on consumer items, over 70% of total barter value takes place at the commercial enterprise level through nationwide exchanges like Merchants Barter Exchange of New Jersey which pioneered the first automated barter software for commercial applications back in 1999. Although not the only such exchange, MBE seems to have cornered the market with a 29% share of the active commercial barter market. The company is growing so fast that it found the need to license its operations in all 50 states to keep up with the growing demand. MBE also has the distinction of being the only nationwide barter network that is truly cash-free. All the other exchanges require that some percentage of barter transactions require cash (typically from 25% to 60%).

As usual, the biggest barter players remained the same in 2005 with the advertising media accounting for 32% of all barter, with manufacturing and hoteliers tied for second at 15% each. The other 38% of the nation's barter action is pretty much evenly distributed amongst the building trades, retailers, professional services, and travel and entertainment industries.

According to senior NABA analysts in New York and Toronto, barters growth is being fed by an uncertain economy that's plagued by natural disasters, threats of more terrorism, and political tensions. "Like the energy and food industries, the barter business is virtually 100% recession-proof" remarked Walter Pollock, chief analyst at NABA. Statistically, barter transactions actual increased nation-wide by 12.5% after the 9/11 tragedy and has not yet stopped growing annually. "Barter is a great safety net for start-ups and for veterans it provides a strategic and tactical advantage over competitors" explained Darlene Penske, Executive Director of NABA.

For business owners contemplating barter in the future, Penske warns proprietors to be wary of Internet-based exchanges that have no verifiable offices and staff. “There are always unscrupulous operators lurking in Cyberspace who ride the coattails of the success of legitimate barter exchanges waiting to prey and profit on those that don’t do their homework” Those that need to check out the complaint, arbitration, and litigation history of a barter exchange can contact NABA at NABA@email.com, the Better Business Bureau, or the Federal Trade Commission.

Indeed the numbers don't lie and it appears that barter will play a larger role in America's future commercial growth, especially now that NAFTA regulations are so conducive to cross-border barter. MBE was quick to recognize the international impact of barter and was the first American barter exchange to open offices in Toronto and Mexico City. Is America bullish on barter or is this just a trendy fad that will pass down the same path to oblivion as the dot coms? "I don't think that saving money will ever go out of style" chuckled Penske. Most CPA's and CFO's would probably agree with her and acknowledged that barter creates a win-win scenario for merchants everywhere. Although cash may remain king for decades to come, those that barter can't really complain about higher and more positive cash-flows.

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Brenda Grabowski
NORTH AMERICAN BARTER ASSOCIATION
647-295-4647
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