When consumers spend more money at small- and medium-sized retailers, product flies off the shelves, and stores often run into the need to replenish inventory to keep shelves full.
While spending has been relatively flat for much of the year, that trend could change in the next couple of months as the economy picks up steam. As a result, retailers many need to rely more heavily on inventory financing to ensure the items customers want are available for sale.
U.S. self-reported daily spending has been flat since May, coming in at $89 per day in July, according to Gallup. The flat levels are related to the weak GDP reports of the past couple of quarters, but that could change with an improved growth projection for the second quarter of 2013.
Initially, economists believed growth would be below 2 percent, however there was increased optimism following the latest report from the U.S. Department of Commerce, which was much better than expected.
"Today's surprise implies a significant upward revision to second-quarter GDP," Laura Rosner, economist at BNP Paribas, told Reuters. "Our calculations suggest an implied revision of roughly plus 0.8 percent and our tracking estimate of second-quarter GDP growth is now 2.5 percent."
If accelerated economic growth lead to increased consumer spending, sales may rise at small- and medium-sized retailers. Should this occur, there might end up being a shortage of inventory at many of these stores. To ensure shelves remain full, businesses may need to turn to inventory financing.
This form of asset-based lending enables retailers to use current product as collateral to obtain a revolving line of credit, which, in turn, can be utilized to purchase additional inventory and keep shelves full.