1. (AThe Resource Centre
FORBES INDIA
Date: 19/08/2016 Page No: 68 Location: Main Circulation: 75000
Edition: National
XSTOK
Stitching Up Surplus
Xstok founders Sanjiv Khandelwal and Mihir Shah have created an online
B2B marketplace for textile mills to auction their excess stock. But they
have the deeply traditional roots of the industry to contend with
B Y A N G A D S I N G H T H A K U R
I
t's a familiar scene. Buyers
crowd a room that serves as
a marketplace. They shout
out their bids, jostling with
each other for floor space. The
sale and purchase of textile stock
in India is a spectacle, at least
in popular perception. We have
the movies to thank for that.
But the textile market also
has a quieter, more discreet side
to it: The sale of surplus stock,
from apparels to unused yarn.
In an industry that accounts
for 2 percent of India's GDP and
13 percent of its export earnings
(according to the ministry of textiles),
the surplus, or extra stock, isin
itself a huge market. "But it's very
basic; completely in the unorganised
segment,"says Prashant Agarwal,
joint MD of management consulting
firm Wazir Advisors. Sellers,typically
textile companies or mills, maintain
relationships with a few buyers,
and prices are determined in a
relatively arbitrary manner, he says.
The founders of Mumbai-based
Xstok are out tochange that. "India
produces $11 billion [around Rs
74,000 crore] worth of textile surplus
annually. And that market works in
a traditional, opaque way," explains
6 8 I F O R B E S I N D I A AUGUST 19, 2016
Copyright of the article is with the publication
2. Xstok's co-founder Sanjiv Khandelwal,
sitting in his company's South Mumbai
office that resembles a loft, in blue
jeans and an orange shirt with his
company's logo emblazoned on it.
The platform that Khandelwal and
co-founder Mihir Shah have built is
the first of its kind to allow textile
manufacturers with surplus stock
to sell it through regular auctions or
direct sales with dynamic pricing. It's
a straightforward proposition, but
given the industry's deeply traditional
roots, the challenge is significant.
"While relationships are the
strength behind partnerships, in a
B2B [business-to-business] context,
they can slow down growth," says
Khandelwal, 52, a serial creator of
online marketplaces. Way back in
1999, he built polyesteronline.com. It
didn't last and, in hindsight, he admits,
that may have been too early for India.
While he was involved in a number
of ventures thereafter, the most
recent ones brought him back to
the auction and marketplace model.
"One of the last wasa diamond
marketplace called polygon.net. It
was a B2B marketplace connecting
manufacturers and suppliers," hesays.
This was followed by the creation of
an online auction platform to sell office
spaces in Mumbai's Bharat Diamond
Bourse. "From diamonds, the thought
of going beyond auctioneering and
into dynamic pricing came in."
Xstok's story began with a call
from "one of the country's largest
textile companies" in 2014—he won't
say which—asking Khandelwal if he
would be willing to create an auction
platform to sell surplus stock. It
was just an idea at that point, but
was validated by everyone he and
Shah spoke to. While the sellers
were enthusiastic, "there wassome
hesitance from the buyers because of
the technology component", says the
40-year-old Shah, who was previously
an investment banker at Bank of
America Merrill Lynch in the US.
Not any more. The buyers have
begun to trust the platform, which
is easing them onto the online
marketplace. Xstok's multi-step
purchasing process, for instance,
enables buyers to receive samples
for physical examination.
While the company does not
have any significant competition in
the space at present, it does have a
daunting challenger."The challenge
is the status quo,"says Anish Jhaveri,
founder of OliphansCapital, an
early stage investment firm that
participated in Xstok's reported
$450,000 angel investment round.
"The only technology the textile
"We're not here
for disintermedi-
ation. We're here
to make sure
that all parties
provide a just and
fair margin."
sector has used is in manufacturing."
(Xstok's other investors include
Manish Choksi, president, home
improvement, international and IT at
Asian Paints, People Group founder
Anupam Mittal, Jeetu Panjabi,
formerly of Capital Group, and Vineet
Suchanti, MD, Keynote Capitals.)
The inertia against change stems
from the value that intermediaries
command from interpersonal
relationships and insider tips. "There
are a lot of arrangements between
manufacturers and buyers and they're
comfortable with that." says Agarwal
of Wazir Advisors. There'sa regular
routine, where, every month, suppliers
call selected buyers, and "have an
open tender-cum-understanding
process". Simply put, it's about who
you know and what they tell you.
Besides, surplus isn't the first order of
business. "The most important thing is
to sell the stock," Agarwal points out.
Khandelwal is more measured
in describing the disruption. He
insists that Xstok has only optimised
a process that has existed for
generations. "We're not here for
disintermediation. We'reJiere to
make sure that all the partie> involved
provide a just and fair margin."
In the real world too, people talk
"to each other about various factors
that influence the price of surplus
textiles, Khandelwal says. "How
does the market look? What's new?
What's PM Modi doing? The import
duty's being changed, etc."The idea
at the heart of Xstok is to take into
account all these factors to fix the
price of the surplus, usingthe same
concept that determines the price of
your airline ticket: Dynamic pricing.
For its part, Xstok generates
revenues through an annual fee
that sellers pay to beon the
platform. It also charges them
a small share of the transaction
amount. The company declined
to share its revenue figures.
It is still early days, of course.
The firm turned a year old this
June. In that time, it completed
500 auctions, got 9,OQi^ registered
buyers and claims to have forged
exclusive relationships with some
of India's largest textile companies,
including Oswal Denim, D'Decor
Home Fabrics and Arvind Mills.
"Today, most brands are moving to
smaller production runs [of fabrics],
leading to more surplus. Unless
companies are able to sell that at a
good price, overall profitability of
the business takes a hit,"says Puneet
Jain, CEO, Arvind Fashion Brands.
"Just gettingthe right buyers
to connect with the right sellers
at the right time is goingto add
significant value to this space,"says
People Group's Mittal. "Execution's
going to be critical here." •
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