Venture: Can an old idea like barter work in a tight economy?

August 22, 2011

By Dan Weissmann and Ashley Gross

Download Story
(WBEZ/Dan Weissmann)
Much of the equipment in the Fireside kitchen - like the grill, pizza oven and epoxy floor - was acquired through barter.

A shaky economy, with cash tight, would seem like a good time for a very old idea: Barter. The word evokes trade on a small scale: your garden vegetables for my plumbing help. But bartering's gone big time - there's even a national network that facilitates cash-less transactions. We spent some time with one local businessman who's had a long-time case of swapping fever.

Richard Wohn loves him some barter. He sits in the main dining room of the Fireside Inn, the North Side restaurant he's owned for 22 years, and points to things he's gotten through trade.

WOHN: Let's start with our signature--the fireplace. We're called the Fireside. The chairs are on trade, the tabletops, that waitress station there is on trade. Do you see those mustards down there? They're on trade! Yellow mustard, America's mustard. Isn't that awesome?

I should explain, this is not straight barter-- Wohn didn't give the mustard purveyor dinner for ten. Instead, Wohn and the mustard guy both belong to a national "barter exchange" with 16,000 other businesses. The exchange plays two roles:

First, they're a broker. Tell 'em what you're looking for, and they'll let you know who's trying to sell it.

WOHN: I've gotten cheesecakes on trade, pasta on trade. Computers on trade, laptops on trade. I got a PT Cruiser. On trade.

Second, they're the central bank for a kind of private economy-one that runs on a special currency, called "trade dollars." The exchange issues participants a card that works like a debit card-but only for transactions with other members.

What's on offer is "excess inventory"-stuff that's not selling anyway. Economists call this "market segmentation"- how to pick up extra business with discounts, while your core customers keep paying sticker price. Think: Last-minute deals on airfare.

In Wohn's case, his excess inventory is empty tables. He's already paying a bunch of fixed costs-for the space, for his staff, for heat and electricity-so his only cost for the extra meals is ingredients--maybe 30 percent of sticker price.

So: He gets extra business from people who otherwise wouldn't cross town to eat at Fireside-and he's constantly bargain-hunting on the trade network.

WOHN: This was a once-in-a-lifetime deal on these tabletops, beautiful mahogany. Look at how nice and straight they are after fifteen years.

Wohn says barter has become an integral part of his business. He estimates that on average, 5 to 10 percent of his business comes from trade-at least five tables a night. Barter is also an integral part of the building. Wohn's gotten new floors, a new roof, even the paint on the walls. He takes me on a tour, starting with the kitchen.

WOHN: Here's our bread warmer, and it's a really dynamite bread warmer…

Also the soup warmer, the char-broiler, the rotisserie, the flat-top, the eight-burner, the ice-cream cooler, the epoxy floors, the stainless steel on the walls…

WOHN: That was a real good move, by the way.

…the little freezer down there, the chef's table, the convection oven, the precision scales,

WOHN: The pizza oven and… Oh! The pizza roller over there. My pizza roller broke and it just so happened that very week, a guy was offering a pizza roller. So I got that.

Then, there are gifts: For staff, to say thank you, even when times are lean. Movie tickets, passes to Six Flags, custom-made chocolates for the whole staff on Valentines day.

WOHN: Custom chocolates! On Valentine's! Who can do that?

Also: Laser treatment to help his office manager quit smoking. Trips to the Bahamas-six years running-for his office manager. The PT Cruiser? A bonus for another manager. And he buys gifts for Rich.

WOHN: I'm getting my teeth done. I've got a time-share in Vail. On trade. And my snowboard. And the jacket I wear. My dog gets shampooed on trade. And her boarding is on trade when I go to Vail.

Wohn's the first to admit-well, maybe not the first-that barter's not for everyone.

WOHN: You're buying excess inventory. You're not going to Wal-Mart, where they've got tons of every item over there.

But Wohn likes the bargain-hunting aspect, and after 20 years, he says he's got the knack of working the bartering system.

WOHN: I spend it as quickly as I get it, and I get a lot of it.

When Rich Wohn started bartering, the company he worked with was one of dozens of regional barter exchanges across the country. That group has since been bought up by a bigger, national exchange, International Monetary Systems, or IMS; IMS has been on a campaign for years to "roll up" the barter industry-to buy up the competition and consolidate. They've bought 25 so far.

STRABLEY: A dollar is only as strong as your ability to earn and spend it.

A trade dollar, that is. That's IMS CEO John Strabley, talking about why they're trying to scale up: The bigger the exchange is, the more things there are to buy, and the more potential customers there are to buy them.

Sounds great. Except IMS's stock is in the toilet. It trades for less than a fifth of what it did four years ago, and for three of the last four years, they've run an operating deficit. All this during a big recession-- just when you'd expect a barter exchange to thrive. So, what gives?

STRABLEY: One thing we did not anticipate was the number of businesses that were shutting down. We have closed up more accounts because of the out-of-business sign. It's been kind of a mind-blower.

Strabley says the company is continuing to grow-they've scheduled another takeover for October-and he thinks the stock price will recover.

If he's right, then when the next great recession comes along-which, depending on whether you think the last one ever ended, could happen any minute-- IMS may be ready to mop up. I bet Rich Wohn will be right there with them.

And now for the windy indicator…

Uh, okay, maybe we'd all be better off if I don't sing. I'm Ashley Gross.

So what can sales of opera tickets tell us about the economy? Are things on their way up? Or down. Susan Mathieson Mayer of the Lyric Opera says:

MAYER: Well, we're very pleased the new sales for the coming season are up a little bit.

The Lyric even managed to raise ticket prices for the coming season by about 3 percent, and even more for the most expensive seats, which can set you back 200 bucks.

Mayer says even in this economy, people are spending on certain luxuries.

MAYER: My goodness, walk around malls and you will see people - some people - who can still afford to buy a bag for $1500 or a pair of shoes for $400. There will always be demand for the top.

Maybe you and I - the hoi polloi - don't fall into that category. But some tickets in the balcony go for as low as 34 bucks.

The opera's had a tough couple of years financially. And it just struck a tentative deal with its performers after some tense negotiations. But let's put things in perspective. As long as the vengeance of hell isn't boiling in our hearts, we're doing alright.