Bartering to tide over the recession

Adam Smith, the Scottish philosopher noted in his seminal work "The Wealth of Nations" that "the propensity to truck, barter and exchange one
thing for another is common to all men, and to be found in no other
race of animals"
. Bartering may be defined as a medium in which goods and/or services are directly exchanged for other goods and/or services, without the use of money. It has been around for millenia in non-monetary societies and the internet offers a vibrant 21st century as seen in Craigslist.

The depth of the recession has crimped the cash balances of many firms including in the hospitality industry leading to a revival of barter. These Chicago area hotels, for instance, are bartering a range of items including advertising and dry cleaning for hotel rooms. One of them, The Talbott Hotel, a
149-room boutique hotel near North Michigan Avenue, gave nine room nights to What’s Happening, a community newspaper chain,
in exchange for Valentine’s Day weekend advertising. Companies
receiving room nights often use them as employee incentives. The 355-room Hotel Sax Chicago on North Dearborn Street is trading 20
to 30 rooms per month for advertising—up 20 percent from last year.

Others such as the Barter Business exchange claim, somewhat unsurprisingly, that bartering is not limited to adverse economic times and note that "a hotel might have an 8 percent vacancy rate and can fill those
empty rooms by trading for cleaning services. In bad times, the hotel
might have a higher vacancy rate, but still fill those rooms through
trades with other businesses low on cash". reports that "a wide range of properties — from the Riviera Resort & Spa in Palm Springs
and Marquis Los Cabos in Cabo San Lucas, to urban hotels such as Affinia Hotels in Manhattan and Chicago,
and even spa resorts like The Lodge at Woodloch — are using barter as a strategic financial tool, with the
assistance of specialists such as Innovative Travel Marketing. These hotel
companies tap the equity of their empty accommodations to expand their cash
flow and their ability to buy advertising, product or soft goods. For
example, by taking just 1% of potential room revenue, a hotel can realize a
significant credit to purchase advertising or merchandise that would
increase sales".

Barter is not without its negatives though and they include the high cost of transactions (eg.maintaining accounts for diverse vendors) and the lack of transparency (room rate on the sell side and pricing on the buy side). While it may work for individual (typically small companies) it probably will not do much for any of the hospitality majors.

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

One thought on “Bartering to tide over the recession”

  1. Thank you for highlighting barter as a creative financial tool for the hotel industry. However, it does have value for both independents and hotel chains as there are no transaction fees or high costs when you work with a corporate barter company such as ITM, as you noted. There is transparency and pricing is competitive allowing hotels to increase profit and gain occupancy without using cash. It is a win – win.

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