A Christmas Exchange: Swapping Services for Gifts

SAN FRANCISCO (Dec. 23) -- Graphic designer David Torme went on a Christmas shopping spree at a gift fair in Santa Rosa this month, acquiring $1,500 worth of jewelry, leather coats, scarves, fine wines and other gifts. But he did not spend a dime. He made all of the purchases by swapping his services through a barter exchange network, International Monetary Systems.

"Probably our whole Christmas this year will be on barter," said Torme, who has been trading his services for more than 20 years. "We are using it more and more during these times because everyone is cash poor in this economy."

In a time of hedge funds and derivatives, barter might sound like a practice from a bygone era. But thanks to neighborhood swaps, Web sites such as Craigslist and trade groups such as IMS, barter is making a comeback during this economic downturn.

For small businesses with sluggish sales or for underemployed professionals who have time on their hands, barter can be a way to dispose of excess inventory or augment work hours.

Torme's company, Torme Design Associates of San Anselmo, provides integrated marketing and advertising services for dozens of California companies. In the past, barter has made up about 20 percent of his business, but that has risen to 30 percent during the recession, he said.

"Time is only money if someone is paying you," said Paul Garrett, Bay Area manager for IMS. "Trade is all extra. Members are able to bill excess hours, sell products that weren't moving and take advantage of everything that's out there."

For instance, some members use trade dollars to pay for private schooling for their children. The private school then could use its trade dollars to hire a plumber, or have the school painted, or use a landscape gardener, or get legal services.

UC Berkeley Professor Steven Tadelis, who specializes in economic incentives at the Haas School of Business, said it's not unusual to find alternative trading on the rise when unemployment is high and cash and credit are tight.

"Because of our lack of income and our inability to get long-term credit at reasonable rates, we can't use the normal market," he said. "By me offering a service that you accept, we are creating value.

"Basically, you might see people switching to barter because they just can't get money," he added.

Formal barter clubs such as IMS are geared toward small businesses and offer a more complex trading system than one-to-one exchanges, making it possible for members to trade for services or products offered by anyone in the network. In effect, such networks establish mini-economies by creating their own currency, known at IMS as trade dollars.

"In a direct trade, you are obviously limited to what the other guy has," said Garrett, who helped organize the Christmas fair in Santa Rosa. "If you are part of a barter company, you have access to every other product or service in the club."

IMS has about 2,000 member businesses in the Bay Area and 16,500 nationwide. It charges a 7.5 percent fee on each transaction. Income from barter deals is taxable, and IMS reports all trades to the Internal Revenue Service.

Each year, the network holds Christmas fairs so companies that offer goods, not services, can more easily make trades. Members use an IMS debit card to make purchases and pay sales tax in cash.

This year, IMS held 14 fairs around the country, and the goods traded totaled more than $2.7 million, the company said.

"While many retailers are reporting a decline in seasonal sales for 2009, our trading volume is quite consistent with last year, as our secondary barter economy continues to enhance the businesses and lifestyles of our members," CEO Don Mardak said.

Garrett said IMS seeks to increase a member firm's business by 5 percent to 10 percent with barter. More than that, he said, can make it difficult for a company to maintain the cash flow it needs to survive.

Finding ways to spend trade dollars can be a problem for businesses that rely heavily on trade. Some members end up spending their money on items they don't really need.

"I've bought a slot machine, an air hockey table and a pinball machine," said Jeff Horwitz, an IMS member and contractor from Campbell who remodels kitchens and bathrooms. "I wouldn't buy them normally, but since I have the trade dollars, I get these things."

Horwitz began bartering a decade ago and has expanded his clientele by offering to work for a combination of cash and trade. "If you get upside down, it's a problem," he said. "At one point, I couldn't do any more trades. I had 64,000 trade dollars. It was hard to get rid of them."

James Brown, the owner of El Paseo Limousine in Silicon Valley, spent the equivalent of $5,000 at an earlier Christmas fair in Santa Clara on gifts such as a dining room set, Christmas decorations and food and wine for clients. He also uses trade dollars to pay for dental care for his family and maintenance for his fleet.

"Any time I can put a vehicle on the road with barter, I keep a driver employed and put trade dollars in my account," said Brown, who started with one car and now has 60. "Overall, it's great."

Other forms of barter also have become more popular during the recession. Around the country, thousands of people post items on Craigslist every week offering one-for-one swaps. Some are more unusual than others.

In Northern California, for example, Debbie wants to trade a trick bike for contact lenses. Jesse offers to paint Napa Valley houses for quality wine. Another trader offers 25 grams of gold jewelry for a giant popcorn machine. A dog breeder will exchange a Boston terrier pup for a Fender guitar. A backyard farmer will trade marijuana bushes for a gaming computer.

Susan MacTavish Best, who represents Craigslist, said barter listings have risen 80 percent nationally over the past 24 months. "Users will barter practically anything on the site," she said, "including old junk and stuff that is collecting dust as well as services such as gardening and painting."

Trisha Rorabaugh, who operates a San Jose Web site design business, posted an ad on Craigslist offering her design services to restaurants in exchange for dining.

Contacted by e-mail, she said she started out swapping services with friends and used to joke that she should wear a T-shirt reading, "Will work for food." Now with the recession, she said, trade requests from potential clients have soared.

"Lately most of the barter I have done is for things that I normally couldn't afford otherwise," she said. Her bounty has included getting a massage, a facial and a pedicure and going out by limo for a quiet dinner for two.

"My regular clients barely cover my monthly expenses," she said, "but with barter I can be broke in style."

Kristan Lawson and Anneli Rufus, husband-and-wife co-authors of "The Scavengers' Manifesto," say informal barter exchanges also are springing up. Neighborhoods organize informal garden swaps to trade seeds and produce as well as clothing swaps to trade garments.

And increasingly popular, they said, are "Really Really Free Markets," which are aimed at creating an alternative gift economy. At these loosely organized events in public parks, people bring their unwanted items, lay them out on the lawn, and take home items that others have brought.

"More and more trading is happening," Rufus said. "People ask themselves, 'What do I have that is worth something that I can trade?' instead of reaching for their wallet first."