As consumers begin to feel more confident in the economy, spending at retailers could pick up, which might lead to increased demand for inventory financing.
With product coming of the shelves, stock needs to be replenished but small- and medium-sized retailers often can't afford to do this on their own dime. Luckily, asset-based lending is available to help.
Confidence levels were better than expected in July, as the Thomson Reuters/University of Michigan final reading on the index of consumer sentiment increased to 85.1 from 84.1 in June. Economists surveyed by Bloomberg called for a reading of a 84.
"The labor markets better, you're seeing home prices rise, you're seeing equity prices rise, so there are a lot of things out there to be positive about," Brian Jones, senior U.S. economist at Societe Generale, told Bloomberg. "If you think about the things that drive consumer confidence, they should be rising as well through the end of the year."
Americans were more confident in current economic conditions as well, with the index measuring that sentiment hitting a six-year high. Survey director Richard Curtin said high confidence levels should help boost consumer spending throughout the end of the year.
Rising confidence a welcome sign for struggling retailers
The past couple months haven't gone as well as retailers would have liked, which is why this heightened level of consumer confidence could be a good sign going forward.
Consumer spending has been stagnant for quite some time, which continued in June. Americans' self-reported daily spending averaged $90 in June, unchanged from May and up slightly from $89 in March, according to Gallup.
July could be a different story though, as consumers tend to spend more money when confidence is higher.
Higher sales levels could lead to increased reliance on inventory financing
When sales pick up at small- and medium-sized retailers, there comes a need for inventory to be replenished. However, businesses of this size often struggle to do this on their own due to a variety of reasons, such as lagging cash flow or limited available capital.
Inventory financing can be utilized to purchase additional product, as it allows retailers to use current inventory as collateral to obtain a revolving line of credit, which, in turn, can be used to help keep shelves stocked. These funds can also be used to cover operating costs, which is beneficial for many retailers.