Easing economic confidence could lead to retailers relying on inventory financing

The past couple of months have been great for retailers, as consumers have shown high confidence in the economy, but it appears as though that sentiment could be coming to an end. 

Should this be the case, small-to medium-sized retailers might need to increasingly rely on inventory financing to get by, as cash flow could fall below normal levels with the potential of a consumer spending slowdown. 

One sign that high confidence in the economy could be ending is the declining Economic Confidence Index from Gallup. After nearly entering positive territory in June, the ECI hit minus-12 in the week ending July 14 – the lowest level since late April. The biggest reason for the drop was Congress' failure to avert the budget sequestration, the report noted. 

Retail sales lower than expected in June
Another indicator that Americans could be feeling less confident in the economy is the fact that retail sales were lower than expected in June. 

U.S. retail and food services sales were at a seasonally adjusted rate of $422.8 billion, up 0.4 percent from the previous month and 5.7 percent when compared to a year ago, according to the U.S. Department of Commerce. Economists surveyed by Bloomberg called for a 0.8 percent gain. 

While consumers have been increasing their purchases of vehicles, they are cutting back on non-essentials (i.e. electronics and meals at restaurants), which lead to the shortcoming in sales. 

"The consumer is going to remain a solid performer in the economy, though not a stellar one," Russell Price, senior economist at Ameriprise Financial, told Bloomberg. "Looking forward, we'll have a slow uptake from an exceptionally weak second quarter."

Inventory financing can help retailers get through slow sales periods
As sales at retailers begin to ease, small- and medium-sized businesses might need to turn to inventory financing. During these trying times, cash flow often lags, which can make it difficult to operate at normal levels.

However, this form of asset-based lending allows retailers to turn their current inventory into equity by using it as collateral to secure a revolving line of credit. Businesses who are struggling with operating costs can then use this line of credit to help stay afloat during seasonal lulls and periods when consumers might be holding back spending.