Shopper's Stop Limited - Securities and Exchange Board of India

Vendor Arrangements
As a retailer, we enter into various types of arrangements with our vendors, and business partners.
These arrangements may have different revenue recognition norms and accounting policies governing
them. These are as follows:
Bought Out Merchandise
We purchase the merchandise from the vendor under this arrangement, and hence own the inventory. All
our private label products and some of the brands that we retail form part of this arrangement.
Merchandise on Consignment Basis
Under this arrangement, the consignor remains the owner of the inventory and bears all inventory related
risks. All unsold stock can be returned to the consignor, with our responsibility being limited to stock that
may get damaged or lost while in our warehouses or stores. The consignor receives the payment for the
merchandise only after it is sold.
Concessionaires
These are arrangements under which we provide our concessionaires with a demarcated space within
our store to sell products. The concessionaire is responsible for inventory and also employs staff at
counters. We monitor the product range as well as the sales staff to ensure consistency with the
Shoppers’ Stop offering.
Gross Cash Margins
As a retailer, we endeavor to enhance our Gross Cash Margins. In retail, it is important to sell more value
from the same area (Shelf Space) and earn higher cash margins from sales. We can do this by either
retailing products that have very high margins, but lower inventory turns, alternatively buy products, which
have very high sell through but contribute to volume expansion at lower margins. Similarly, we have to
optimize our sales force deployment in the stores.
Most of the time, a retailer uses a combination of aforementioned to increase the Gross Cash Margins.
Since our cost of operations is largely fixed (once a store is opened, there is limited variable cost),
maximizing Gross Cash Margins becomes the key to enhancing profitability. As a result of this there
maybe a reduction in percentage margins in periods of high growth.
Gross Cash Margins = (Gross Retail Sales – Cost of Goods Sold)
Our Gross Retail Sales, Cost of Goods Sold (COGS) and Gross Cash Margins for the last 3 years are
given below:
Period ending March 31 2004 2003
Rs mn
2002
Sales Of Products Traded in by the Company
- Own Merchandise (including concessionaire sales) 3001 2508 2010
- Consignment Merchandise 953 441 392
Gross Retail Sales (A) 3954 2,949 2402
Cost of Consignment Merchandise 708 291 282
Less: Increase in Inventories 111 158 55
Add: Purchases (for own merchandise including
concessionaire Purchases) 2115 1944 1530
Cost of Goods Sold (B) 2712 2077 1757
Gross Cash Margin (A-B) 1242 872 645
Gross Cash Margin as % of Gross Retail Sales 31.4% 29.6% 26.9%
142