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Welspun India: Out of the woods. Image: Mexy Xavier. Balkrishan (BK) Goenka is unlikely to forget August 2. The chairman of the $2. Welspun Group brought in his 5. Mumbai. The celebrations came on the back of an impressive entrepreneurial run and him being ranked 8. Forbes India Rich List with an estimated personal wealth of $1.

Welspun India Ltd (WIL) too had witnessed remarkable growth across all financial parameters over the last five years till the end of FY1. See chart on page 7. Its chief financial officer Altaf Jiwani, 5. London on August 1. Things would change dramatically soon. Hours later, the world came crashing down on Goenka and Jiwani as an allegation threatened the very existence of the company.

Target Corp, the second- largest value retailer in the US after Walmart, shot off a letter to its millions of customers telling them that the bed sheets it had sold, which were supplied by WIL and supposedly made of Egyptian- origin cotton, may not have been made with that premium variety of the natural staple fibre. It ordered a recall, offered refund to buyers and snapped all business ties—worth $9. WIL’s overall business)—with its Indian vendor. WIL had captured market share in the US like none other because of its focus on partnering its customers with solutions, and not just commodity textile products. It had reached out to end- buyers of its bed and bath linen in the US to understand their preferences and tailored products accordingly.

Through its analytics wing, it had also kept an eye on inventory levels and provided timely inputs to customers. The ramifications of the development were therefore grave. It didn’t take long for naysayers to write off the three- decade- old company which makes every fifth towel sold in the US in addition to bed linen and rugs. The markets reflected their sentiments. By August 3. 0, close to 5. WIL’s market value had been wiped off amid speculation that other American retailers may follow Target.

Goenka, who founded his business empire comprising steel pipes, textiles and infrastructure in 1. We were zapped and didn’t know what had hit us,” he says. It wasn’t like there was any issue with the quality of the bed sheets; they always enjoyed the highest user ratings.”The challenge ahead was daunting, but Goenka, who’s no stranger to dealing with business upheavals—he says he has faced a crisis every seven years since 1. He led the turnaround aided by his pragmatism and never- say- die attitude. And his determination was bolstered by the gumption showed by wife Dipali, 4.

WIL’s CEO and joint managing director last year, Jiwani and a 2. Acknowledging the issue. As a first step towards course correction, WIL decided to admit its mistake with timely communication to all its stakeholders. As early as August 2.

The idea was to acknowledge the issue, explain to everyone what we had understood till then and explain the future steps we would take to ensure that such an incident does not repeat,” Jiwani tells Forbes India. Once the problem was ascertained, overnight a war- room was created at WIL’s headquarters at Kamala Mills in Mumbai’s business district of Lower Parel. The senior leadership roped in management and media consultants to advise them on the road ahead. Dipali was entrusted with the responsibility of meeting WIL’s clients across the world, including those in the US, and winning back their trust.

I travelled all over the US continuously for seven days, meeting each and every client,” she says. We told them that if they needed us to indemnify them from any potential liability, we would do that and also do whatever it takes to ensure their interest is not jeopardised.”The strategy seems to have worked as the company is slowly getting back on track. As on April 2. 4, 2. Their faith had been bolstered by the fact that other than Target, the company had managed to retain all its other marquee clients, including JC Penney, Walmart, Macy’s and Bed Bath & Beyond.

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This validation was crucial because over the years, WIL has emerged as a vendor of choice for the who’s who in global retail, especially in the US. The internal efforts did not go unnoticed with the business community either. They stood up, faced the music, evolved their systems and processes and came out of the crisis in 6- 8 months,” says Arun Kejriwal, director of Kejriwal Research and Investment Services. I doubt if any other company could have managed this. It is an affirmation of the fact that they didn’t deliberately shortchange their customers.”Welspun has always accorded priority to its customers and it became even more imperative to protect their interests after the Target fiasco.

WIL offered them the option of recalling the products and offering a full refund, or re- labelling and selling the bed sheets at a marked- down price with full disclosure. It even tied up with Cotton Egypt Association, which is exclusively authorised to give a gold seal certification to Egyptian cotton products, to further ensure the authenticity of the natural fibre it sources from that country.

This proactive approach was appreciated by our clients who decided to stick with us,” says Dipali, who was ranked 1. Forbes Asia’s 5. 0 Power Businesswomen List last year.

As the company’s revival began taking shape, it infused greater enthusiasm among its employees. Jiwani says the promoters’ commitment to deal with the crisis inspired confidence in him.

And though Goenka saw his personal wealth decline in tandem with the loss in market value of the company, he was willing to cut a cheque for “whatever it took” to salvage the situation. Immediately, a contingency fund of $7. Jiwani tells Forbes India. WIL eventually took a hit of Rs 5. Such measured steps stemmed the potential loss of further business (it lost around 1.

Target and the Egyptian cotton portfolio across retailers). However, the job was only half done. The challenge was to ensure that such a scenario does not arise again.

Goenka says the textile industry procures raw material, including cotton, yarn and fabric, from multiple vendors globally. A lot of them are unorganised. As a result, cotton from different sources (but with the same physical characteristics) tends to get mixed with each other. The challenge is exacerbated by the fact that production of actual Egyptian cotton has declined over the years (from 1. FY0. 5 to 0. 1. 8 million in FY1. Credit Suisse report), and a lot of non- Egyptian cotton tends to land up in the African country to get re- exported. What happened with us could have happened to anyone.

It is an issue that is systemic to the textile industry,” explains Goenka. Watch Get Shorty Streaming there. But there was no point in giving excuses. We needed to figure out a solution.”  Eye on innovation. Welspun got audit and consulting firm Ernst & Young (EY) to conduct a thorough audit and ascertain how processes could be beefed up. A technology- enabled system called Wel- Trak has been put in place at WIL, which uses an RFID (radio frequency identification) and colour- coding to ensure end- to- end accountability of where a batch of cotton has come from, in which product it has been used, and to which retailer it has been shipped. End- buyers of these home textiles can even scan the QR code on these products to know the origin of the cotton used. As many as 1. 0 consultants, including EY, KPMG, Pricewaterhouse.

Coopers, Accenture, IBM and SAP, have been mandated by WIL to use technology to improve various processes ranging from HR automation to reducing manual intervention in manufacturing. We have become the consultants’ delight,” Jiwani says jokingly. At a group level, Welspun has allocated Rs 1.

For all premium products where it is essential to ensure traceability, the company has decided to only procure cotton externally and carry out the spinning and weaving work internally to exercise strict quality control. An executive has been stationed in Egypt to ensure that the Egyptian cotton procured by the company originates there.