After a no-show last year, retailers will see at least 10% higher financing costs this year as an increase in working capital requirement will outpace the rise in revenue. This is being led by a spurt in expansion plans.

Delays in mall construction last year and tepid market conditions led to a curb in expansion plans of major retailers in the country. Malls were delayed last year as realty players saw lesser returns and longer payback from malls than that from residential projects.

?There are at least three places where we are still waiting for malls to hand over. It has been delayed for over two years due to legal complications and various other permissions,? said Vinay Nadkarni, MD of the apparel chain Globus Stores, which is promoted by the Rajan Raheja group. Usually, companies invest R5- 6 crore plus real estate costs to open a store in India. Also, a new store does not break even until 15-18 months, which impacts the overall profitability of the company during the period.

?All the investments that we are making now will start paying us after 24 months. So only by 2015-2016, we will see a complete change in our overall profits,? said Govind Shrikhande, managing director of Shoppers Stop, a K Raheja company. In the quarter ended December 31, the company posted 12% lower net profit at R17 crore.

Inventory levels are also expected to increase in 2013 due to slowing sales led by new stores on the anvil. Last year, the working capital cycle had improved as retailers offered higher and longer periods of discounts to reduce inventory.

?Rapid expansion is likely to have an adverse impact on the credit profile of the retail companies. Companies will be staring at a high working capital-related debt if happens this year,? Deep N Mukherjee, director, India Ratings & Research said. ?There will be continued pressure on margins as the new stores would generate returns only after 15-18 months.? One should not be surprised by the good numbers in the December quarter, he added.

Costs will be on the rise this year, said an executive of theAditya Birla group-run Madura Fashion & Lifestyle, which is also on an expansion spree. ?But only if we make the investments now, will we reap long-term benefits.?