Flat consumer spending could boost inventory financing market

The past couple of months have been a mixed bag for consumers, which has led to uncertainty for small- and medium-sized retailers. 

For example, American spending was flat in July, potentially leading to a difficult month for retail sales. As a result, businesses may have needed to increasingly rely on inventory financing to cover operating expenses while waiting for the holiday spending season to arrive. 

The Deloitte Consumer Spending Index was unchanged at 4.4 in July, with increases to home prices and the labor market offsetting weaknesses in other aspects of the economy. Many retailers hoped back-to-school shopping would help spur sales growth, but many families are only buying the essentials. 

"Our recent back-to-school shopping survey showed that consumers are more positive about the U.S. economy than in past years," said Alison Paul, vice chairman, Deloitte LLP and retail & distribution sector leader. "However, nearly 60 percent of shoppers said they would buy only what the family needs. About one-third said they would spend more, but mainly due to the perception of higher prices and children needing more expensive items for school."

Consumer sentiment reverses from four-year high in August
Spending may have continued to remain flat in August, as consumers were less confident in the economy. 

With concern over the strength of the economy being unable to lower the unemployment rate this year, the Thomson Reuters/University of Michigan Index of Consumer Sentiment dropped to 82.1 – a four-month low – from 85.1 in July. 

"The August survey indicates that the recent confidence gains have stalled as consumers await decisions on the federal budget and monetary policy," said Richard Curtin, chief economist at Surveys of Consumers. "Unlike a year ago, consumers do not anticipate that the budgetary issues will engender a similar Congressional stalemate, but few express a great deal of confidence in the economic policies of the government."

Future prospects declined as well, with the Index of Consumer Expectations falling 3.7 percent to 73.7, which could be a bad sign for retailers in the coming months. 

Inventory financing can help businesses seeing low sales levels
When sales are slow, small- and medium-sized businesses can struggle to keep the doors open, as operating costs don't go down during these times of the year. As a result, financial assistance may be needed, but it often can't come from a traditional bank as loan applications are typically declined due to limited available capital or poor credit. 

Fortunately, inventory financing is available to help businesses during seasonal lulls. This type of asset-based lending enables retailers to use current product as collateral to obtain a revolving line of credit, which, in turn, can be drawn from to help cover operating costs. 

Even when business is going well, inventory financing can be beneficial. With product coming off the shelves, the stockroom will need to be replenished. Using the funds made available by the revolving line of credit, retailers can purchase additional inventory to ensure items are always in stock.