Although consumer sentiment fell slightly in April from the previous month, household wealth remained strong, which could be a good sign for retailers.
If consumer spending picks up, small- to medium-sized businesses could see higher sales in the near future, which may lead to a need to replenish inventory. However, companies of this size might struggle to obtain a loan from a bank, as oftentimes the available capital just isn't there. But, inventory financing is available to retailers looking to keep their shelves stocked.
The Thomson Reuters/University of Michigan final index of consumer sentiment dropped from 78.6 in March to 76.4. Despite the decline, the index came in higher than projected, as economists surveyed by Bloomberg called for a reading of 73.5.
"We are seeing slightly softer growth but on the other hand household wealth looks pretty good," Gus Faucher, senior economist at PNC Financial Services Group, told Bloomberg. "The economy is continuing to expand but we do have some drags."
Potential headwinds for consumer spending moving forward include higher payroll taxes and limited job growth, but rising home prices could potentially offset those worries.
Should consumer spending pick up in the coming months, small- to medium-sized retailers could see additional business. With that, the need to replenish inventory might arise, but businesses with limited available capital and slow cash flow could find it difficult to get a loan from a bank.
Retailers who are told "No" by one of these financial institutions could potentially turn to inventory financing. This type of asset-based lending allows a company to use current inventory as collateral to obtain a revolving line of credit, which can be used to help keep shelves stocked.