JCK Special Report: Bartering Makes a Surprise Comeback



Upon entering Mark Enix’s store, it appears to be just a recently remodeled retail outlet. But for every tile laid, wall painted, and wire grounded, there’s a customer story. Enix didn’t spend one dime renovating his store. Fountain City Jewelers, in Knoxville, Tenn., was remodeled through bartering.

As credit tightens and consumers weigh every price point, some retail jewelers are turning to barter to get through cash-poor times. Barter takes many forms, from old-fashioned one-to-one swaps to exchanging goods and services on large networks where online transactions build up barter points. Even social networking Web sites such as Facebook and Twitter have become vehicles for bartering (see Sidebar).

Retail jewelers use barter points primarily to cover promotional costs, especially printing, but some use the networks to provide perks, and even medical benefits, to employees.

A member of Tradebank since 1993, Enix has bartered mainly stagnant inventory (six months or longer in the display cases) for printing work, office equipment, carpet cleaning, a vacation for a newly married staffer, chiropractic adjustments for employees, and more.

"Mark does a fantastic job using the network," says Knoxville-based Tradebank’s regional director Marc Davis. "He always reviews Tradebank before writing a check and really thinks outside the box."

Enix is on the alert whenever the topic of occupation comes up during a sales presentation. When a mechanic on a limited budget walked into the store, Enix seized the opportunity to fix up his father’s old 1968 International Scout-which had been shrouded under a tarp in the yard for years-and also up-sell the customer.

Committed to an $800 budget, the mechanic wanted a half-carat diamond ring. "I up-sold him to a 1.00 ct. ring that retailed for $4,500 after agreeing to do the barter exchange," says Enix. "The mechanic was happy and his wife was elated."

Enix knew the exchange had risks, so he drew up a barter agreement that included a completion deadline for the car restoration work. "I’ve always wanted to restore the car and now I’m doing it," says Enix. "Is it worth it? Imagine how much the couple will talk about this exchange while the car is being restored, and beyond, to family members and friends."

The interactive nature of bartering is part of its appeal. Those who barter within a network are mainly new customers outside the store’s market who put more into the exchange than handing over a credit card. Whether they clean carpets, do carpentry work in the store, or print promotional materials, network members develop a deeper relationship with the jeweler during the exchange. There are other benefits as well.

"Many barter customers turn into cash customers," says Nancy Carbonetti, co-owner of Stephens Jewelers Inc., in Wilmington, Del. "And, in our Delaware market we get good exposure through the barter exchange by reaching customers as far as Maryland, New Jersey, and Philadelphia."

Carbonetti is more reserved than Enix in the jewelry she’s willing to barter and the people she prefers to trade with in her network, Atlantic Barter Corp. A member for nearly 10 years, Carbonetti mostly works through the network’s president, Matt Hepworth, who filters jewelry requests. "He knows our store well and his members well, so the exchanges have always gone smoothly," Carbonetti says.

Although Carbonetti and Enix use their bartering networks differently, both agree that the jewelry bartered is in the store and paid for. Like Enix, Carbonetti has used her barter network for both work and personal needs. "I’ve bartered jewelry for a hot air balloon ride as part of a store contest," she says. "I’ve even used the barter network for my kid’s braces and new mattresses for their beds."

Engagement rings are a common request in barter networks. Of course, bridal jewelry is the mother’s milk of retailing, and jewelers don’t want to kill the cash cow. But they are willing to make exceptions to keep engagement ring exchanges fair and equitable for both parties.

Sam Bruner, owner of M.A.B. Diamonds, in Springfield, Pa., is a member of Atlantic Barter and an active barterer for more than 25 years. His policy when bartering diamond-set engagement rings is either no trade or limited barter on the diamond. "There are thin margins to begin with, but the amount of the barter depends on the type of diamond requested," says Bruner.

If the mounting is from new inventory, Bruner will split the exchange-70 percent barter and 30 percent cash to maintain his bridal margins. Older mountings will be traded at 100 percent as will the labor to complete the work.

For Bruner, old inventory is barter-friendly and will trade at 100 percent. And, given the high margins for estate jewelry and certain types of pearl jewelry, Bruner will trade 100 percent on these items as well. Beyond that, Bruner is selective in the inventory he barters.

As the head of Atlantic Barter, Hepworth has identified many benefits for jewelers who barter, starting with selling jewelry at retail prices and buying at wholesale levels within the network. "It’s also a way to sell down inventory while widening your market as much as 150 miles," says Hepworth. "And you bring in customers you otherwise wouldn’t have had if not for bartering."

Unfortunately, the recession has spawned a crop of bogus bartering companies. Hepworth cautions retailers to do their due diligence on barter networks, especially net-based-only exchanges. He suggests starting with barter industry groups such as NATE (National Association of Trade Exchanges) and IRTA (International Reciprocal Trade Association).

In addition, ask prospective barter companies for a customer list. Call members on the list and ask about the network and how it has worked for them. Start slowly with small amounts, say $1,000 or $2,000. List at least 10 or more products or services a retailer can immediately use upon joining a barter network.

Hepworth also cautions that "the tax man cometh." Under the Tax Equity & Fair Responsibility Act of 1982, those who barter must claim the income on their 1040 Schedule C forms. "Bartering is its own currency," says Hepworth. "At the end of the year we issue 1099-B’s to our clients for filing their taxes."

[Sidebar]

Bartering on Social Networks

Daniel Gordon, of Samuel Gordon Jewelers, is typical of the up-and-coming generation of jewelers. He uses Twitter and Facebook to "barter" word-of-mouth advertising. Quick to avoid calling it a contest, Gordon says: "You pay cash or barter for traditional forms of advertising. Why wouldn’t you pay for the best form of advertising on [online] social networks?"

Gordon began this effort on Twitter in early May. To generate more followers on his store’s corporate Twitter account, Gordon gave away a garnet ring for Twitter users to tweet and retweet about. Pleased with the success, Gordon upped the ante with a $2,000 emerald that had been sitting in inventory for five years. Since creating his Twitter account in May, he’s garnered 150 followers. At press time, the emerald had received almost 2,100 unique views on twitpics. On Facebook, the online barter brought in 900 friends in 15 days for Samuel Gordon Jewelers’ corporate account.