Maybe things wouldn’t have gone awry at Arvind if I had kept a level head. Then maybe Murphy’s Law had to come into play. Everything that we had created painstakingly over several decades would be in vain. Why? There was no one I could blame.
We got everything right, except one piece, one crucial piece. I had systematically repositioned our textiles business. When I joined, power looms were just starting to take over the market. For the first time, we were in a difficult situation. I soon realised we wouldn’t survive their onslaught. There were some 80-85 mills in Ahmedabad — it was the Manchester of India, but mills had already started closing down. And you couldn’t even say it was an equal competition since power looms were flourishing because they were unregulated, they didn’t have to pay taxes. On the other hand, we were constrained by licences. There was no question of the political class intervening because power looms were creating jobs, in large numbers. It seemed impossible to win against them — we were not being allowed to grow, so we had to reinvent. We needed a solution, there was no point voicing how unfair the competition was. I had learnt early on that life isn’t fair. It is what it is. While I understood the difficulty of the situation, it was difficult to get others in the family on board. They had never seen failure before — someone who hasn’t encountered the dark side, thinks nothing wrong can ever happen to him.
I took over as managing director in 1985. Luckily, my uncles empowered me and allowed me to make decisions. In those dark days, I saw a ray of light when we stumbled on to denim. That single ray of light meant we could experiment going global. Arvind till then was a 100% domestic business with womenswear as our domain. I was working with Vasant Mote from IIM-A on strategy at the time. We needed a new vision because as a domestic player, we couldn’t win against the power looms. We needed to come up with products that had a global appeal. And the answer was very clear — western wear, even though it was a new concept in India. It was at the same time that Bollywood had just made jeans fashionable, but they weren’t available in the country yet. Rajiv Badlani (my brother-in-law) quit his job at O&M and together we decided to make denim…
Moving into denim required a unique technology. But we managed to get it right thanks to PR Roy, who was running research at Arvind. We began exporting to Russia — our experimental ground — through Keshavlal Talakchand, headed by Harkishon Udani, to understand and learn export of denim. It was an instant hit and we continued doing business with them going forward.
Along with denim, we brought in a whole lot of western wear including wrinkle-free trousers. We built an integrated knitting business and the largest shirting facility. We also got our first international brand, Arrow, into the country. Arrow was known for its white shirt. Papa often talked highly of Arrow, but in India ready-to-wear was a big change as everyone tailored their clothes. The reactions we got were: “What’s this? It’s so much cheaper to get clothes stitched”.
That’s when I met Govind Mirchandani. It was 1987 and I had become the de facto CEO of Arvind. Govind came from Madura Coats, and quickly I made him the CEO for branded garments. Govind was a brilliant guy! Arrow was a mass brand but he wanted to create a Ralph Lauren here! His idea was to open stand-alone stores although there was nothing like that in India then. The first Arrow store on Kamaraj Road in Bangalore was an instant success. We had completely changed Arrow’s branding — it sold polyester cotton shirts and was a department store brand in America. We turned it into a premium cotton, formal brand, which one could wear to the office.
I can never forget the first meeting I had with the multi-billion dollar owners of Arrow. They wanted to know our turnover. When I said Rs.100 crore, no one understood. They didn’t know what a crore meant! Their ignorance stretched to them asking me about snakes and elephants in India. Irritated and angry, I made the decision of taking Arrow to India! Convincing them to give us a licence was not the only hurdle. There was no legal mechanism to bring in an international brand into India. How could we pay them royalty in dollars out of India? Hence, I created a subsidiary in New York, which was used for exports too. Finally, they agreed to it but it was complicated legal structuring.
Tax structuring was something I was fairly adept at by that time. The first thing I did at Arvind when I joined was tax planning along with PS Kunte, who was a brilliant tax planner. We created one of the most complex tax structures without any income! That was funny. The whole structure was such that I would neither pay income tax nor wealth tax. I was kicked! I had seen our family suffer because we always played by the rule book. There was a disproportionate wealth tax and a very high income tax. I grew up seeing the family lose wealth because of taxation. It isn’t fair to tax someone in such a way that there is no wealth creation.
After the success of Arrow, I signed up with Mohan Murjani. He became a great friend. Mohan had become a celebrity after building Gloria Vanderbilt — as the only Asian to have built an iconic brand in New York. I was enthralled; I wanted to bring Gloria Vanderbilt into India. Tommy Hilfiger didn’t exist at the time, but Mohan was working on that and had already opened an outlet. Unfortunately, by then, everything went wrong for him. He tried to build Coca-Cola as a clothing brand and went into financial distress…
Even before that happened, our joint venture fell apart. He had to sell off everything but he retained the licence for Tommy Hilfiger in India. He came to me and we got the brand to India. When he sold out of the joint venture, PVH Corp bought his shares. We built a platform, which was unique, almost the largest for international brands.
That was the time I met the directors of PVH, GAP, Levi’s, VF… you name it. Getting the meetings was a tough task. Our history and impeccable reputation helped. Somehow, we managed to sell the potential India offered. It was tough but it happened.
The first jeans brand I went to was Levi’s. I became good friends with their guy from Philippines, Leonard Bennett. I gave them all the details of the required legal structures and how to go about the operation. Then, their board decided they wanted to come to India on their own! I was heartbroken. Levi’s is as iconic as you get in denims but I took it in my stride. Then I got married to VF and brought in Lee and Wrangler. For a short time, Lee and Wrangler did better than Levi’s. Soon enough, Levi’s overtook them as the number one denim brand in India. The only saving grace was that they became important customers — we are part of their supply chain globally.
It’s like dadaji used to say: “You can only put in your best, the results are never in your hand.” Whether you succeed or fail, there’s only one question to ask: Did you give it your best? Overall, between 1985 and 1997, we did well. We ranked 31st in the country. Everything was on the right track. We were futuristic on management, systems, were the first to bring in SAP and consult with McKinsey. We were working with CK Prahalad and bringing global brands to India. It was fantastic!
That was also the time when some of the best talent joined our ranks. I was clear about bringing in professionals from day one. I knew if you mix management and ownership, there would be problems. As a third generation entrepreneur, expressing your opinions on who is capable or not can spoil relations in a family. If I have to discuss the capabilities of my brother, cousin or even son, it can be a difficult conversation. So why get into it? The best thing is to hand over the management to a neutral guy — it is easier for all of us sitting on one side to say if the person appointed is performing well or not. We cannot have divergent views on that.
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Till 1995, I was riding high on the success of denim. Little did I know that the path ahead was steep, going all the way down to the brink of bankruptcy…
It started with Anagram. I had an agreement with GE Capital to sell it. They had done their audit, Arthur Anderson did a due diligence — no one found anything wrong. But my own Chartered Accountants, Darshan and Jayesh, came up to me, saying the cash flows are not matching. Something was wrong. The books were being cooked! I went to GE and called off the deal. I had Rs.500 crore deposits from the market. As non-executive chairman, the fault didn’t lie at my feet but I decided not to sue the management as it would have only made matters worse. The family ironed out all issues, repaid everything. We even paid something to the equity shareholders because the cost of equity had become zero. At that stage, every bank wanted a piece of retail. I decided to sell the company to ICICI.
But Anagram wasn’t the only problem. It was only the beginning of a really bad period. Everything that could go wrong, did. Denim demand and prices collapsed — it was our cash cow. When exchange rates went the other way, cash flows further dried up. To add to matters, I had planned a large expansion at Santej, Gandhinagar. The plant wasn’t built on time due to heavy rains, so much so that Thol Lake broke and flooded Santej. The Rs.1,000-crore project got delayed by a year.
And Arvind was caught in the crossfire… We had to go for one of the largest restructuring in history at that time. There were 80 lenders who sued me, of course and threatened to take me to bankruptcy. What had really gone wrong was the execution of Santej, which was compounded by the decline in cash flows from denim. The business was viable at the EBITDA level, but because of the leveraged balance sheet, our cash flows were not enough to service operations.
It was the greatest business lesson of my life: if you overleverage and don’t give yourself time, things will go wrong. You cannot assume they will go right. In a worst-case scenario, you will end up with a cash flow problem. If that happens, you are so preoccupied with managing cash flows that growth takes a back seat. All creative things stop and you end up creating a problem for all stakeholders.
That’s what happened. Restructuring was a tough, lengthy and tedious process. It started in 1998. For the first time in the history of Arvind, we missed a dividend. I went through hell. I sold everything and brought in Rs.70 crore personally to show our commitment. It was a tough thing to do — to sell off every asset I owned. It hurt to let go of my homes and properties but I had to do it. I used to love the penthouse at Tahnee Heights in Mumbai, to wake up and look at the sea from there was a great feeling. It’s still one of the best buildings in Mumbai, but I had to sell it off…
The period from 1997 to 2002 were the worst years of my life. To be brought down from the pinnacle of success was both shocking and traumatic. Even friends talked to me like I was a criminal. That’s when I realised how harsh the world could be. But then if you haven’t paid your dues, people have every right to treat you differently. It was difficult though, to be slighted by allies, colleagues, friends and peers! I had never been treated like that in my entire life.
But this phase taught me that everything is transient — fame as well as criticism. It reaffirmed my faith in Nishkam Karma, the philosophy of Gita — you shouldn’t be impacted by success or failure. To get up each day and go back to work, what you need is equanimity, especially when you are fighting for survival. You have to give your best even when you know the shutters can come down any time. For me, it wasn’t just about the company, the lenders and the humiliation, but the reputation of the family… the legacy. I kept thinking I had created this mess…
Even then, like always, the entire family stood by me. My uncles Arvind, Niranjan and cousin Samveg never questioned me or uttered a word. They simply stood by me like a rock. Jayesh Shah was exceptional and took all the heat, handled the meetings and shielded me from the bankers. But for him, it would have been impossible to tide over the crisis. Some friends were staunch in their support. I got a letter from T Thomas, the then-chairman of Hindustan Lever, saying, “Sanjay, don’t lose heart, hang in there.”
As a child, I would question the meaning of life. Why do we exist? The search for answers led me to parapsychology. I read books on every religion, even spirituality. All of them said the only way to find the answer was from within, through self-discovery. Ours was a religious family. Dadaji was the chairman of Anandji Kalyanji Trust, which has been managing Jain temples in Gujarat and Rajasthan, for many years now. Papa was a staunch Jain too, but I never got hooked on to Jainism. My mother always said, “Why do you need to go to a temple? God is everywhere. God is within you.” She has always been a pillar of strength. She was quite creative, and introduced us to all kinds of extra-curricular activities – from Indian classical music to painting, art, dance and drama. A talented singer and musician, she wanted me to learn the tabla. I did, but soon lost interest.
Instead I ventured deeper into spirituality. I decided to learn Maharishi Yogi’s transcendental meditation. But there was no one who could teach me in Ahmedabad. One day, my liaison manager introduced me to a type of meditation, Sahaj Marg. I got the first sitting from preceptor Rajababu, who then, took me to the Master — Parthasarathi Rajagopalachari — in 1994. Ever since, spiritual practice has been a major part of my life. In times of distress, his words have always worked as a balm. And though the medium has nothing to do with solving financial or health problems, it helps put things in perspective.
A win is never simply a win. Consider Roger Federer. His success is not just because he is a better player, but because he has better mental strength and self-belief. He plays the big points better. Good players raise their game at critical junctures. Whether you are a sportsman or businessman, it’s the same principle. The ability to think out of the box, to stay focused against impossible odds is what takes you ahead of the pack.
In our case, once the restructuring was done, everything fell in place. Santej started working, and we could focus on the business. We ventured into many new things — technical textiles, agro, water treatment, engineering and real estate. It was as if I had joined Arvind, all over again...
When you are managing a listed company, your dharma is to create shareholder value. But can you do that and create an impact beyond profit? Can you create millions of jobs? Make the textile industry, which uses huge amounts of water, waterless? Help farmers grow cotton in a sustainable way? Create a positive carbon footprint? Disrupt the textile chain? Offer mass customisation? Sitting in Myntra and Amazon’s warehouses, deliver unique shirts to customers instantaneously? Can you compress the entire process? Can you give customers 20,000 designs to choose from? Can you make smart clothes? Can you embed wearable technology in clothes? Can you find new fibres to enable this? There are so many questions that are yet to be answered. The journey is ongoing…
This is part two of a two-part series. You can read part one here.
