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The weekly newsletter for everyone interested in barter--the world's most versatile business tool!

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March 6, 2001

Barter A Key Tool In The $200 Million Polo.com Project

Leveraging Famous Name Launches Web Site

Ralph Lauren has been designing clothes for 33 years. Now his company is embarking on another new venture, selling its high-end apparel online, via Polo.com. But thanks to a huge "barter assist" the new, synergistic venture looks more like a free advertising deal for Polo.

David Lauren, Ralph's 29-year-old son, is Polo.com's chief marketing officer. He and his team have put together an ambitious, elegantly designed site that sells thousands of Polo items amid screen after screen of "lifestyle content"--original articles and mini movies on the good life.

Most importantly, however, is the fact that Polo isn't risking a penny on the $200 million project! Announced a year ago, the company (Ralph Lauren Media) is half owned by Polo Ralph Lauren and half owned by NBC and its affiliates.

For its stake, NBC ponied up $50 million in cash through its home-shopping subsidiary, ValueVision. Plus $110 million worth of television advertising and use of a ValueVision customer service center outside of Minneapolis. NBCi kicked in $40 million worth of online distribution and promotions too!

What was Polo's contribution? An agreement to sell Ralph Lauren goods to Ralph Lauren Media at cost, and accept returns at 35 of its 134 retail stores, as well as adding a Polo.com tag to the bottom of its print ads.

Royalties of 5% to 10% on sales will go back to Ralph Lauren on a schedule: Nothing on the first $75 million in sales via the web site, 10% for $75 million to $200 million, 12% for $200 million to $250 million, and 15% after that. No matter how long it takes to hit these targets, the entire Polo operation will benefit from the ubiquitous Polo.com marketing campaign!!


High Tech Company Barters Warrants To Compete In Competitive Marketplace

An aggressive marketing practice by Broadcom, an Orange County, California, manufacturer of communication chips, makes competing with them very tough.

Here's how it works: when Broadcom begins to negotiate with a privately held company, it urges the company to strike deals with its customers that offer warrants in exchange for sales commitments over several years.

Essentially, Broadcom issues warrants--or rights to buy its stock--to the customers of the nonpublicly held companies that it acquires, as an incentive to buy the acquired company's products.

When Broadcom for example, bought Altima, they also issued warrants to buy Broadcom to Altima's customers. Under this scenario, a customer who gets warrants worth, say, $40 to buy $100 of products, records the cost of goods at $60, not $100.

If that same customer is selling those products for $120, then under this barter arrangement its gross margin is 50%, compared with 17% if they didn't get the warrants!

The customer not only makes a greater profit but has a significant incentive to meet the purchase agreement to which they've committed. And Broadcom, by using warrants in this manner, assures itself of ever-expanding sales revenues.


ITEX Strikes Fast Acquiring Assets of Ubarter.com Canada

Major Canadian Trade Exchange Will Have Immediate Impact On Bottomline

Ubarter.com's goal of being strictly a dot.com company was the impetus for placing their Canadian off-line barter operations for sale. Within three weeks of the announcement, ITEX took immediate action to pick a plum--foiling several notable competitors. A plum because the price for the substantial operations was well below the going rate for trade exchanges.

According to ITEX the assets acquired included a customer list of 7,000 members (primary and sub accounts) as well as inventories throughout Canada, along with the physical assets of the Toronto office.

ITEX's game plan includes not only retaining all current employees in the Toronto office, but increasing the trade brokering staff. The transaction was for cash and a note, but did not involve any exchange of ITEX shares (Pink Sheets: ITEX).

In fiscal 2000, Ubarter.com Canada had cash revenues of $1,300,000 and combined trade volume of more than $30 million.

Collins Christensen, CEO of ITEX, excitedly exclaimed, "The completion of this acquisition represents the execution of another significant step in our business plan...the increase in our member base will create significant numbers of new trading opportunities for our current and future members, while expanding the revenues of the ITEX Corporation."


Here And There. . .

  • The newest advertising medium? Look on the sides of mail trucks and collection boxes in U.S. post office lobbies, or on the USPS web site. They will be targeting national advertisers to help cover a projected $480 million deficit this fiscal year, despite the average 4.6% postal rate increase that took effect in February.

  • In an effort to self-regulate, a newly formed association has been announced in Canada...the Canadian Association of Trade Exchanges (CATE). The organization's goal is dedicated to maintaining public and business confidence in the Canadian barter industry. Full details will be found in the next quarterly issue of BarterNews.

  • Mail Boxes Etc. is cashing out, being acquired in an all-cash deal by United Parcel Service. Mail Boxes' 4,300 franchised stores used barter to grow their business, one of their strategic barter agreements was reported in our recent January 30 issue.

  • Corporate barter company iSolve announced the implementation of a technology system, designed by Tallan, which will enable them to simplify data exchange with their strategic partner PurchasePro.com. In short, PurchasePro's over 30,000 businesses and 200 private-label marketplace users will have full access to iSolve's barter and surplus inventory management solutions.

  • Minnesota Governor Jesse Ventura wants to expand his state's sales-tax base to include myriad new services such as management consulting and tax preparation. Whereas in Nebraska state Senator Kermit Brashear, a longtime Republican leader, is pushing a bill to end a sales-tax exemption for such businesses as advertising agencies and construction companies.

    Look for other states to try to broaden their sales-tax base by including an array of previously exempt services.

  • The National Association of Trade Exchanges (NATE) has scheduled its annual convention, titled Barter at the Beach, for April 19-21 at the Wyndham Hotel in Miami Beach. For further information see their web site at www.nate.org.

 

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Copyright BarterNews 2003. Redistribution of BarterNews content expressly prohibited without the prior written permission of BarterNews.