June was a good month for consumers, which led to a slightly higher level of spending. As a result, retailers might have seen more sales, which could lead to an increased reliance on inventory financing in the near future.
When sales levels move higher, small- and medium-sized retailers often need to rely on some sort of financial assistance to replenish inventory, which is where this form of asset-based lending can come in handy.
The Deloitte Consumer Spending Index edged up in June, rising to 4.3 from 4.2 in the previous month. Americans were aided by the strengthening housing and jobs markets.
"Even if consumer sentiment and household finances are on the mend, shoppers still expect a good deal," said Alison Paul, vice chairman, Deloitte LLP and retail & distribution sector leader. "A cooler than usual spring left some retailers to rely on markdowns to make room for back-to-school items."
Home price increases in May helped boost household wealth
Part of the reason spending levels increased in June was the fact that home prices continued to climb in May.
CoreLogic's Home Price Index revealed a 2.6 percent bump from the previous month and 12.2 percent year-over-year increase, which was the largest annual gain in more than seven years. Also, prices have now increased on a monthly basis for 15 straight months.
"Home price appreciation, particularly in much of the western half of the U.S., is increasing at a torrid pace," said Anand Nallathambi, president and CEO of CoreLogic. "Across the country, pent-up demand and continued low interest rates are fueling strong demand for a limited inventory of properties. We expect that trend to continue to drive up prices throughout the balance of the summer months."
Moving forward, the Pending HPI projects home prices will rise 13.2 percent on a year-over-year basis in June, and 2.9 percent from the previous month.
Inventory financing can aid retailers with higher sales levels
As product comes off the shelves, retailers will need to replenish inventory. However, small-to medium-sized businesses can struggle to do this on their own dime, which is why inventory financing demand could rise.
This type of asset-based lending enables businesses to use current product as collateral to obtain a revolving line of credit, which, in turn, can be utilized to purchase additional inventory to ensure shelves are never empty.