It is a question I inevitably get at every networking event, friend or family gathering, and discussion surrounding what I do. Thankfully it’s a question I love to answer, so today’s blog post gets back to the fundamentals of our business model – what exactly is Corporate Trade?
In its simplest form, Corporate Trade is the business of restoring value where it has diminished and creating value where it is needed. Also known as Corporate Barter, it is a strategic tool used by many Fortune 1000 corporations to maintain book value on slow-moving, returned, or obsolete assets such as:
- Last season’s clothing or accessories
- Perishables e.g. groceries
- Product labeled with expired promotions
- Outdated electronics or technology e.g. mobile phones
- Obsolete capital equipment
- Excess real estate
- Almost any asset that could result in loss of value to a business…the list is practically endless
Many organizations have turned to Corporate Trade (Corporate Barter) as a means to mitigate the risks associated with inventory and asset management, and to reduce the negative impact on the bottom line.
In a typical Corporate Trade transaction, assets are acquired in exchange for cash and/or Trade Credits at two to three times the best offer available through typical liquidation. In return, Trade Credits are combined with cash to purchase necessary goods and services such as: desirable advertising space; printing and retail marketing; freight and logistics; travel, event space, and hotel rooms.
With Corporate Trade organizations can:
- Realize higher returns on excess inventory and other assets
- Decrease cash outlay by using excess assets to partially fund expenses
- Extend the reach of marketing and advertising budgets
- Improve and sustain growth by making assets work harder
- Increase product distribution to new markets
How does Corporate Trade work?
A Corporate Trade deal can be tailored based on business needs. For simplicity’s sake, we will use the most common type of Corporate Trade transaction: a Trade Credit Deal.
Problem: A manufacturer has a cereal brand that performs significantly below expectations resulting in excess inventory. For the purposes of this example, let’s assume that the wholesale value of the cereal is $1M. If the manufacturer were to liquidate the cereal the value would be reduced to $300,000 – a loss of 70% against expected revenue.
Solution: Using Trade Credits, a Corporate Trade organization purchases the inventory at the full wholesale value of $1M. In return, the manufacturer agrees to acquire $5M in pre-planned media such as primetime television advertising using 80% cash and 20% in Trade Credits. To mitigate competitive threat and to protect existing retailers, the Corporate Trade organization sells the cereal to buyers approved by the manufacturer.
Result: The manufacturer avoids a financial loss on the under-performing cereal, purchases a pre-planned $5M advertising buy for a cash outlay of $4M, and maintains a positive relationship with the existing retail distribution channels.
I'll admit that the concept of Corporate Trade can sometimes seem complex for those unfamiliar with it. We’ve also created this video explaining the nuts and bolts of Corporate Trade, and hope you find it useful.
What obsolete assets are weighing your business down and how do you minimize financial loss?
Kimberly Armstrong, Senior Director of Market Development