Retailers have begun to see business pick up, and with the outlook on consumer spending improving in May, these companies might need to increasingly rely on retail inventory financing.
The Deloitte Consumer Spending Index increased in May, with rising home prices, unemployment claims and real wages showing improvement. The index jumped to a reading of 4.27, up from 4.12 in the previous month.
"Three out of the four components of the Index contributed to an uptick in May and have stayed on a moderate and steady track of improvement over the past several months," said Daniel Bachman, Deloitte's senior U.S. economist. "The labor market has stabilized, and initial unemployment claims fell nearly six percent since this time last year, while real home prices continued to climb and real wages crept up."
With consumer spending potentially picking up in the near future, small- to medium-sized retailers could improve on already rising sales levels. According to the U.S. Department of Commerce, sales hit a seasonally adjusted rate of $421.1 billion in May, a 0.6 percent bump from the previous month and 4.3 percent year-over-year increase.
Should retailers continue to see heightened sales levels, there may be an increased demand for inventory financing. With product coming of the shelves, these businesses will need to replenish.
This type of asset-based lending allows retailers to use current product as collateral to obtain a revolving line of credit, which, in turn, can be utilized to keep shelves stocked.
Failure to keep shelves full during periods where consumers are spending more could lead to missed opportunities, so inventory financing can be extremely beneficial for small- to medium-sized retailers.