An Indian textiles manufacturer may soon find itself hard pressed to remain in business now that Bed Bath & Beyond (NASDAQ: BBBY) has become the latest retailer to launch an investigation into goods it was sold by it that may have been misrepresented.
Target (NYSE: TGT) was the first to discover that sheets it purchased from Welspun India were not what they were advertised. Rather than being premium Egyptian cotton, a lower grade cotton was mislabeled to make the products seem better. The retailer immediately severed its relationship with the manufacturer after an audit determined Welspun had sold it lower quality sheets under the Fieldcrest brand between 2014 and 2016. It has been removing Welspun’s products from its shelves, and is offering a full refund to customers who purchased the sheets during that timeframe.
Egyptian cotton is considered to lend itself to a better quality product because it has a longer fibers that make its threads feel softer — which is why retailers can charge more for it. Pima cotton, which actually comes from the same species of plant as Egyptian cotton, is also viewed as being of higher quality. However, it’s grown primarily in the Southwestern U.S., and tends to command somewhat lower prices than Egyptian cotton.
Bloomberg News reports Welspun is one of the world’s largest textile manufacturers and that Target was its second-biggest customer — after Bed Bath & Beyond. If the home goods retailer also drops Welspun as a supplier, it might irretrievably damage the company.
Welspun says it makes 20% of all towels sold in the U.S., and it is reported to be the top home textile supplier to the U.S. Other retailers including Wal-Mart and J.C. Penney have launched their own investigations into Welspun products while Macy’s says it’s monitoring the situation. Ikea has said it will continue carrying Welspun products until the manufacturer’s internal investigation is complete.
Welspun, which has accepted responsibility for the situation (as if it could do anything less) said it is hiring a Big Four accounting to audit its practices.
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Rich Duprey has no position in any stocks mentioned.