After a significant drop in the previous month, retail sales unexpectedly increased in April, which could be a good sign for a sector that has been struggling thus far in 2013.
Should retail sales continue to rise in the coming months, small- to medium-sized retailers might have the need to replenish inventory. Businesses of this size can struggle to complete this on their own, but inventory financing could be available to provide assistance.
Retail sales in April were at a seasonally adjusted rate of $419 billion, a 0.1 percent jump from the previous month and 3.7 percent year-over-year improvement. This was a welcome increase, after sales fell 0.4 percent in March.
"Consumers are staying active and providing support to the economy," Michael Moran, chief economist at Daiwa Capital Markets American, told Bloomberg. "We will see a slowdown this quarter, but it won't be dramatic. There will be some damping of spending due to the payroll tax, but it will be mild."
Employment situation, housing prices, stock market all contribute to rise in retail sales
According to the National Retail Federation, the strong jobs report, rising home prices and stock prices breaking records gave consumers the confidence to shop more in April.
"In the face of higher taxes and sequester, consumers provided the economy a bit of a reprieve this month," said NRF president and CEO Matthew Shay. "Despite colder spring weather and an early Easter, consumers shopped in April, demonstrating an inherent resiliency even as the economy faces serious headwinds, including stagnant job and wage growth."
NRF chief economist Jack Kleinhenz said that April's strong showing won't necessarily translate into a strong second quarter, despite rises in consumer spending.
However, should retail sales continue to post strong numbers, smaller businesses could need to replenish inventory to keep their shelves stocked. Oftentimes, retailers of this size can struggle to purchase inventory on their own dime, or obtain a loan from a bank, so inventory financing could be a good option.
This form of asset-based lending allows small- to medium-sized businesses to use current product as collateral to obtain a revolving line of credit, which can be used to replenish inventory.
Even if sales don't continue to rise, inventory financing could prove beneficial, as a revolving line of credit can be used to keep operating at normal levels when cash flow may be lagging.