U.S. retailers have had an up and down year, but with favorable consumer conditions in recent months, sales at small- and medium sized-businesses likely picked up.
As completed transactions rise, stores may have a need to replenish the stock room, but this can't always be completed on their own dime. Fortunately, inventory financing is available to provide assistance.
Retail sales probably increased at a faster pace in August, with economists surveyed by Bloomberg projecting a 0.4 percent bump after a 0.2 percent increase in July. Americans purchased more cars and trucks, which is a sign that job and wage gains, coupled with stronger household wealth, has led to increased consumer spending levels.
"There's some momentum here," Chris Christopher, U.S. economist at IHS Global Insight, told Bloomberg. "Wage increases, even though they're anemic, are outpacing price increases as long as those gas prices stay down. That gives consumers a little bit of spending power."
Strong home price appreciation aided household wealth
Part of the reason Americans have been able to spend more at small- and medium-sized retailers is the fact the home values have been surging.
In July, CoreLogic's Home Price Index report revealed a 12.4 percent year-over-year increase and 1.8 percent bump from the previous month. This marked the 17th straight month of annual gains in home prices nationally.
"Home prices continue to climb across the nation in July with markets hit hardest during the downturn leading the way," said Anand Nallathambi, president and CEO of CoreLogic. "Nationally, home prices are now within 18 percent of their peak levels reached in April of 2006."
Looking forward, gains are expected to continue in August, with a 12.3 percent annual improvement and 0.4 percent month-over-month increase, according to the CoreLogic Pending HPI.
"Looking ahead to the second half of the year, price growth is expected to slow as seasonal demand wanes and higher mortgage rates have a marginal impact on home purchase demand," said Dr. Mark Fleming, chief economist at CoreLogic.
It is clear that home price appreciation is strong across the country, as only one state experienced a decline in prices – Delaware.
Inventory financing demand may rise with higher consumer spending
With favorable conditions for the American consumer, small- and medium-sized retailers may need to increasingly rely on inventory financing. As spending levels pick up, product will be coming off the shelves, which will need to be replaced.
However, smaller companies can struggle to purchase additional product on their own dime. As a result, retailers may first turn to a bank for a traditional loan, but due to limited available capital or poor credit, their application may be declined.
In such a situation, inventory financing could prove beneficial. This form of asset-based lending enables small- and medium-sized businesses to use current product as collateral to obtain a revolving line of credit, which, in turn, can be drawn from to replenish stock. Essentially, retailers are able to keep their shelves stocked without tying up too much available capital.