USA retailers including J.C. Penney and Wal-Mart are scrutinizing whether sheets Welspun India Ltd. had said were high-end Egyptian cotton were actually cheaper knock-offs, questions that have sent the textile company's shares plunging more than 40 percent.
After Target Corporation made a decision to terminate business with Welspun India for passing off cheap sheets as premium Egyptian cotton, the global retail giant Walmart is also reviewing Welspun cotton certification records. Its list of competitors includes apparel retailers such as Macy's Inc. and J C Penney Company Inc. Welspun earlier said it had hired an accounting firm "to audit our supply systems and processes" and "investigate the root cause" of the problem.
Shares of Welspun India tanked 9.95 per cent on BSE, closing the day at Rs 59.30.
Target revealed that from August 2014 up until July 2016, Welspun substituted items with non-Egyptian cotton when manufacturing products.
The Wall Street Journal reported that Target was one of the manufacturer's biggest customers and generated approximately 10 percent of its total sales. The company began to notify customers on Friday about a refund on the products. "We won't rest until this situation is resolved", Welspun said Wednesday.
On Monday, Welspun shares dropped 20 percent (the daily limit) before its trading was halted. Customers who have purchased falsely labeled products can request a refund by filling out a form on the company's website. TGT, +0.96% alleged the same vendor sold it fraudulent Egyptian-cotton sheets. The spokesperson further said: "However, we will follow their ongoing investigation carefully and await the outcome".
Since then, Welspun is facing the wrath of its investors as Target Corp, one of the company's largest clients, made a decision to call it quits, putting an end to a almost ten-yera relationship.
Egyptian cotton is prized because much of it is "long staple" or "extra long staple", meaning the length of the cotton fibers is longer, resulting in a finer, lighter more durable fabric and longer-lasting, higher-end clothing.
Welspun told investors this week it's conducting an audit.
Kumar, in his note, said Welspun executives were vague on facts during the call, which threw up more questions than answers.