Cotton Supplier Faced Wal-Mart Scrutiny Before -- WSJ
August 26 2016 - 3:03AM
Dow Jones News
A worker at the retailer had warned Welspun's sheets may not be
'Egyptian cotton'
By Sarah Nassauer and Preetika Rana
Wal-Mart Stores Inc. and other retailers are investigating
whether their Egyptian cotton sheets are authentic, but this isn't
the first time the retail giant has had questions about that
product.
In 2008, a Wal-Mart employee warned headquarters staff that the
same supplier currently in question, Welspun India Ltd., might have
been selling the world's largest retailer fake Egyptian cotton bed
sheets, according to former employees and documents reviewed by The
Wall Street Journal.
At its Arkansas headquarters and in India over several months at
that time, internal investigators and at least one hired externally
by Wal-Mart interviewed the company's employees and queried Welspun
for proof that the product was authentic and should carry the
premium label, according to the documents and former employees.
Egyptian cotton is prized for its softness and durability.
Towels, sheets and shirts made from the cotton often command a
premium price.
Wal-Mart on Thursday declined to comment when asked about a 2008
investigation. It is unclear how the investigation turned out. But
the chain has continued to do business with Welspun. Today, the
Indian company makes some of Wal-Mart's Better Homes and Gardens
brand Egyptian cotton sheets.
Welspun wouldn't confirm or deny that Wal-Mart questioned the
authenticity of its Egyptian cotton in 2008. "As a supplier, we
undergo many checks by all our customers in routine business," the
company said. "We remain committed to our customers and any
concerns raised by them are addressed from time to time."
Egyptian cotton sheets have become a heated issue among U.S.
retailers in recent days after Target Corp. on Aug. 19 said it was
pulling thousands of the products off its shelves and cutting ties
with Welspun after it found the manufacturer had used non-Egyptian
cotton for about two years.
Wal-Mart and other big Welspun customers, including J.C. Penney
Co. and Bed Bath & Beyond Inc ., said this week that they were
opening investigations.
"It does raise concerns when a big, reputed supplier comes under
the scanner," said Debashish Mukherjee, who heads consulting firm
A.T. Kearney's consumer and retail practice in India. "But it goes
two ways: Retailers have an equal responsibility in ensuring the
compliance standards are consistently met."
Wal-Mart's 2008 investigation shows how for years questions
about authenticity have dogged the global cotton industry. Traders,
producers and consultants in the cotton industry have suspected
many products labeled as being derived from Egyptian cotton were
fakes.
Egypt produced less than 1% of the global cotton supply last
year, according to the U.S. Department of Agriculture. Output has
suffered amid political and economic upheaval in recent years.
Cotton Egypt Association, which licenses the trademark and
certifies suppliers, estimates 90% of products labeled "Egyptian
cotton" are inauthentic. It recently started promoting DNA testing
to verify the origin of the fiber. Still, retailers have rarely
publicly rebuked suppliers over the issue.
It isn't clear whether other retailers in the past have
investigated products supplied by Welspun.
In a call with investors this week, Welspun Managing Director
Rajesh Mandawewala took responsibility for the mishap. "Without any
ambiguity, the fault is on our side," Mr. Mandawewala said. He
declined to say what specifically had gone wrong, saying only that
"in the manufacturing process, you source a lot of materials at
various stages."
Welspun has commissioned an accounting firm to review its supply
chain so it could emerge "stronger from this process with tighter
controls and robust processes," according to Mr. Mandawewala.
Welspun has been regarded as an Indian manufacturing success
story, transforming itself over the years from a small
yarn-spinning business started in 1985 into one of Asia's largest
textile makers. Large U.S. retailers flocked to the company as a
relative safe haven from the production issues that have troubled
some local firms in developing countries.
The price of shares in the Indian company have halved since
Target's allegations surfaced last week. Welspun's shares fell 8%
on Thursday in Mumbai.
Write to Sarah Nassauer at sarah.nassauer@wsj.com and Preetika
Rana at preetika.rana@wsj.com
(END) Dow Jones Newswires
August 26, 2016 02:48 ET (06:48 GMT)
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