Weak retail sales could create demand for inventory financing

Retailers have had an up and down year, and August proved to be another poor month as sales were limited. When business is slow, small- and medium-sized businesses can struggle to cover operating expenses, as these costs remain the same no matter how many sales are completed. 

As a result, these retailers may need financial assistance to help keep the lights on. This can come in the form of inventory financing, which can be beneficial in times of need. 

According to the National Retail Federation, sales increased 0.1 percent on a seasonally adjusted basis in August. 

"Slow growth continues to be the economic story five years after the financial crisis," NRF President and CEO Matthew Shay said. "The economy, employment, wages, and retail sales continue to stagger along. Retailers and consumers are resilient but not overly optimistic about the broader economy. While positive retail sales growth continues month-after-month, it is just not strong enough to move the needle."

Consumer confidence remains low
Part of the reason Americans haven't been spending money at retailers is the fact that confidence is down. The Bloomberg Consumer Comfort Index increased to minus-32.1 in the week ending September 8, but was still down 5.5 points from a month earlier. 

"Consumer confidence is going to be in a holding pattern for some time," Scott Brown, chief economist for Raymond James & Associates Inc, told Bloomberg. "On the economy, it's just more of the same. We're not seeing a whole lot of wage increases."

One of the biggest factors contributing to low confidence is the smallest back-to-back payroll increases in a year. Additionally, higher mortgage rates are weighing on sentiment. 

Fewer jobs than expected added in August
The employment situation has been one of the strong points of the economy this year, but August's gains were less than forecast. According to the U.S. Department of Labor, total nonfarm employment increased by 169,000 positions. Economists surveyed by Bloomberg called for a 180,000 job gain. 

"Today's numbers are soggy, and certainly at odds with other evidence on the economy that shows things are OK," Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc, told Bloomberg. "Recent reports show there are pockets of strength in the economy as well as pockets of weakness."

However, the labor market does have some bright spots, which could spur consumer spending in September and beyond. In the week ending September 14, first-time applications increased by 15,000, but still remained at the low levels of 309,000, the Department of Labor reported. 

"The labor market is genuinely improving," said Brian Jones, senior U.S. economist at Societe Generale, told Bloomberg. "Even if they're working through the backlog, these numbers seem to have a little bit more behind them than just processing problems."

Should the momentum from initial jobless claims continue into a stronger employment report for September, consumers could become more confident and increase spending. But, until then, small- and medium-sized retailers may continue to struggle. 

Inventory financing can be beneficial for retailers
With consumers experiencing unfavorable economic conditions, spending levels have been depressed. As a result, sales at small- and medium-sized retailers haven't been strong in recent months. 

Unfortunately, operating expenses don't decline with sales, so some businesses may run into financial difficulties. However, there are ways to remain strong during tough economic times. 

For example, retailers can turn to inventory financing, which allows them to utilize current product as collateral to obtain a revolving line of credit. This can be drawn from to help cover utilities and other fixed costs during seasonal lulls. 

Even when sales are strong, inventory financing could prove beneficial, as the funds made available through the line of credit can be used to ensure shelves are never empty.