The art of Corporate Trade

Posted by Sophia Furness Corporate Trade
12 7 2015

Corporate trade companies have been around for many decades and have successfully helped thousands of businesses around the globe earn new-found revenue equalling billions of dollars.

Today, in an era of innovation and rapidly changing consumer preferences we see countless leading brands use Corporate Trade. In 2013 alone, 400,000 companies World Wide utilised their excess stock and underperforming assets, to earn an estimated USD12 Billion dollars in previously lost revenues*.

In a typical Corporate Trade(also known as Barter) transaction the client swaps slow-moving stock or an unwanted asset with the barter company for trade credit, which then can use to part-purchase goods or services, such as media, POS or travel.

In Australia, the largest Corporate Trade company offering clients the opportunity to realise value from goods they are struggling to sell, is Active International. The opportunities are endless with no borderlines. Their UK business has helped Specsavers, the Guernsey-based optical group, obtain advertising, travel and print services by using credits earned from exchanging end-of-season sunglasses and unwanted stock.

Active discreetly helps shift slow-moving inventory across many sectors around the world including automotive and FMCG. In such instances, says Areef Vohra, Managing Director of Active’s Australian operations, the brand can specify that its stock can be sold to a local wholesaler or overseas to avoid upsetting big customers or trade partners, and it doesn’t affect any deals with existing retail channels.

Why barter rather than liquidation?

There are many reasons why companies are better off using Corporate Trade over big discounts or liquidation. Areef Vohra, Managing Director at Active International Australia explains: "Let’s say a company has a $1,000,000 worth of stock which they need to liquidate. In the secondary market they usually get a 30% return on that which will leave them with a $,000 loss. Working with Active International we can issue a $1,000,000 worth of Trade Credit which can sit on that company’s books as an asset. That million dollars’ worth of Trade Credit can then be spent on media campaigns through Active’s media partners and thereby recovering the full value of that stock."

Turning a client’s challenge to success

"There are countless ways to utilise the corporate trade business model to create extra value for clients with plenty of success stories to tell. Active helps a range of FMCG clients in Australia and overseas to tackle the challenges of being over-stocked, or carrying short-dated or delisted stock or simply using their inventory to generate extra media value for their business" said Cameron Swan, Commercial Director, Active International.

Here are a couple of examples of how clients can turn an inventory challenge into a profitable solution:

The short dated stock challenge

As a new entrant in the competitive FMCG market in Australia, this client had outstanding production capabilities however, at the start a limited distribution network, resulting in excess stock. Having placed a value of $150,000 on this surplus stock, the client was left with a resalable value of only $30,000.

"We identified an alternative remarketing channel that was in line with the restrictions set out by our client and also ensure that this would not impact on our client’s existing sales and distribution network. We were able to clear the stock and issue $150k Trade Credit to our client to use in their media spent" said Active’s Commercial Director, Cameron Swan.

In order to utilise their Trade Credit, the client briefed their media agency, to collaborate with Active on media placement.

"The client’s media budget was 100% new money to the Australian marketplace which made it easier to trade through Active, under our media partnership agreed terms" Cameron explained.

The result? Active’s FMCG client received cash rebates to the value of $150k, thereby utilising all Trade Credit issued and creating a financial upside to their business.

The excess stock challenge

An FMCG company had excess inventory where the realisable clearance value was only a fraction of the book value. They had placed a value of $180,000 on the surplus stock. However, the resalable value was only $40,000. Active International identified an alternative remarketing channel and worked with the client to ensure that was in line with their restrictions while ensuring that would not impact on their existing sales and distribution network.

Using this business model, Active was able to clear the stock and issue $180,000 Trade Credit to the company to use in the media spent.

Successfully the client utilised their entire Trade Credit balance within the first year giving the business an upside of $140,000. Since the first transaction, the client has entered into several transactions whereby a total of over $400,000 Trade Credit were issued.

In order to utilise the Trade Credit for media placement, the client had to brief their media agency to collaborate with Active. Together the client, the agency and Active agreed on a plan for negotiations that would include a number of Active media suppliers to support the client’s objectives.

The result? Active International successfully cleared the excess stock clearing the client’s warehouse space. By utilising Corporate Trade, the client received a multiple of the stock’s clearance value with no impact on the client’s media planning while the business was able to realise an upside through clearing their excess inventory. F

What should any company bear in mind before partnering with corporate trade business?

Big is best

Only deal with established corporate trade operators who have financial stability to ensure they will be around in the long term. For finance professionals, this longevity guarantees that they can work with their marketing team to spend their trade credits as part of a media strategy without the worry that that the corporate trade partner might not exist in the future, along with their opportunity to spend credits.

Worldwide presence

If you are a business that operates worldwide you must partner with a corporate trade company with similar reach.

Big brand names

Ask the corporate trade company you approach who they work with. If their client list does not include some blue-chip brands, consider giving them a miss as they are unlikely to have sufficient experience and reach that will deliver maximum value.

Approved resellers

It’s vital that any business sells stock to approved resellers, or else they risk serious damage to their brand. Ensure your corporate trade partner has the contacts to do this.

Being an industry where experience, size, volume of contacts and the provision of the latest reporting technology is key to delivering value, it’s only these businesses that can offer all this to ensure you generate the greatest return from your unwanted assets.

For further information on the Corporate Trade business model and Active International contact Cameron Swan, Commercial Director, Active International cswan@activeinternational.com or +61-2-9466-9116 

*Source: www.irta.com (International Reciprocal Trade Association)

 

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