Jewish World Review
http://www.jewishworldreview.com | (KRT) The headquarters of Active International in Pearl River, N.Y., hold plenty of clues that this is a company that makes lots of money. It occupies three floors of the tallest building in the Blue Hill corporate park along the Bergen County, N.J., border. There are sleekly furnished conference rooms, hundreds of employees working away on computers, and a large brass bell that peals when multimillion-dollar deals are sealed.
It's a little harder to get clues about exactly what Active does to make money.
Those are tucked inside offices and propped up around the work cubicles.
Anita Garrison's office walls are draped with lingerie. She's in the midst of brokering a deal to unload 1 million bras and 550,000 panties to off-price stores. Walk into Willy Pistiner's workspace and you'll see packs of Everest Powerful Mint Gum, Zap tile cleaner, Tylenol and Monster Cable. And without too much prompting, Chief Operating Officer Fredrick Fuest will jump on a Razor scooter and take it for a spin around a corporate showroom filled with everything from wedding dresses to bottles of wine.
Active International is the king of corporate trade, an industry little known outside of corporate boardrooms. It's an industry that thrives when the economy struggles, and for that reason, 2003 should be a very good year, said Krista Vardabash, executive director of the International Reciprocal Trade Association. "In a time of economic strife, corporate barter almost always is on an upswing," she said.
The company, which is employee-owned, doesn't release its net revenues, but industry experts said Active's gross revenue most likely amounted to 40 percent to 50 percent of its $1.1 billion in trade volume, or close to $500 million last year.
Active's employees are corporate alchemists who turn a company's merchandising mistakes - Active prefers to call them "underperforming assets" - into money for advertising, travel or marketing promotions.
Just don't call them liquidators. "Liquidation is a dirty word to us," Fuest said. "What we are is an alternative to liquidation."
A favorite word at Active, and at other corporate trade companies, is leverage. The company's primary trading asset is media time, which it buys at a leveraged price, because it helps a television station or magazine by buying advertising time or space that would be wasted if unused. Active, for example, might pay $1 million for $2 million worth of network time. It then sells that time to a client, who pays the full $2 million price, but gives Active $1.5 million in cash and $500,000 worth of wine, shampoo, scooters or other unwanted inventory.
Active uses the same principle to purchase other "perishables" such as hotel rooms or airline seats at a discount. It might pay $1 million to get $2 million worth of future credit for hotel rooms or airline tickets that it can also trade to clients at full price. It's in the interest of the hotels and airlines to make these deals, Fuest said, "because when that airplane takes off with an empty seat, that seat is gone, the same with a hotel room."
Active parlays its leverage in ad time or airline seats into a profit, the client gets full wholesale credit for unwanted goods, rather than dumping them for 10 cents on the dollar with a liquidator, and everyone is happy.
"It truly is a win-win for everyone," said Active's CEO and co-founder, Alan Elkin.
"What we end up doing is creating a spread, like any other leveraged business," Elkin said. Some deals are more profitable than others, he said. "Like every portfolio, you have your winners and your dogs."
Elkin and his partner, Arthur Wagner, founded Active in 1984, with a business plan they believed in and without a single client. Both of them re-mortgaged their Rockland County, N.Y., homes to get the company off the ground. The company employs 458 people and has offices in 17 countries.
Active was the 10th largest buyer of media time and space in the world in 2002, according to Ad Age magazine, with billings of $750 million. It has used that position to help companies like Casio, Colgate, and Kodak turn unwanted inventory, or even assets like corporate jets or warehouses, into advertising dollars.
Active executives also have seen the industry change from the days when all deals were kept hush-hush and there was a liquidation-type stigma. Now, Fuest said, corporate trade is being viewed more as a smart business decision. "The sense is that you made an intelligent decision to do this rather than take a loss," he said. That said, however, Active and Fuest still are circumspect about revealing details about deals. They wouldn't release specific dollar amounts for trades or put The (Bergen County) Record in touch with satisfied clients.
Active is the dominant player in the corporate barter world, said Bob Meyer, editor of Barter News. "They're the biggest and they're doing an exceptional job," he said. "It's a unique way of doing business," he said. "Essentially what you're doing is moving out merchandise in a way that protects the integrity of your pricing."
The manufacturer, Meyer said, gets a trade credit equal to the wholesale price of its goods, and pays the full price for advertising time, with Active as the go-between.
The concept of corporate barter took off in the early 1990s, during the last major recession, but many of the firms launched then have since folded. Now, the only other firm that competes on the same level as Active is Ion International of Stamford, Conn., which was purchased by Omnicom in 2000.
John Kramer, CEO of Ion, said size in the corporate trade world "depends on what you use as a measurement," but acknowledged that Active has a larger trade volume. "We measure the cash that flows through the place," he said. In Ion's case, that would be $300 million last year, and the trading volume could be estimated at two or three times higher.
Ion counts Pepsi, Mazda, Radio Shack and Tyson Foods among its clients. One unusual trade, Kramer said, involved buying a business - Mrs. Paterson's Aussie Pies - from Hormel. The frozen, handheld chicken pies didn't fit into Hormel's other product lines of non-frozen, canned goods and deli meats, so Ion bought the company with media trade credits for Hormel, then sold the company to a frozen food packager in Minnesota.
"We sold the entire thing, and all the people working for the company kept their jobs," solving a major headache for Hormel. "You can become a very convenient strategic partner for a corporation, and I think that's where the future of our business is going."
Appreciate this type of reporting? Why not sign-up for the daily JWR update. It's free. Just click here.
Comment by clicking here.