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Welspun faces probe from Bed Bath, shares sink again

business Updated: Aug 25, 2016 14:48 IST
Highlight Story

A Welspun facility. The company’s crisis is going from bad to worse (Handout)

US retailer Bed Bath & Beyond said on Wednesday that it has ordered an external audit of textiles from Welspun India, putting more pressure on the embattled Indian bedding and towel maker that has seen nearly half its market value wiped out this week.

Welspun has been caught in a maelstrom after US retailing giant Target last week accused the Indian manufacturer of passing off cheap sheets as premium Egyptian cotton for two years.

Target has said it is severing ties with the company, prompting other Welspun clients including Wal-Mart Stores and JC Penney to also probe the manufacturer.

Welspun shares fell 10% at the open on Thursday, and hit the daily lower limit for a fourth day running. At Thursday’s low, Welspun had a market value of Rs 5,355 crore ($798 million), nearly half of last Friday’s figure.

The stock recovered to trade largely flat by midday on Thursday after Welspun sent a clarification to exchanges reiterating that an external audit of the supply chain has been sought and would be completed in 6-8 weeks.

Bed Bath & Beyond spokeswoman Leah Drill said the retailer will pursue an investigation and take appropriate action.

The company’s announcement came after Wal-Mart, the world’s largest retailer, said it is reviewing Welspun’s cotton certification records. Department store JC Penney is also conducting an investigation “to ensure the integrity of Welspun’s product claims.” Macy’s said on Wednesday it is monitoring the situation.

Welspun scandal follows years of plummeting Egyptian cotton output

Target on Wednesday said it is in the process of taking out all products made by Welspun under the ‘Fieldcrest’ label, and has already removed 750,000 Fieldcrest bedding products from stores and its website. Those were sold between 2014 and 2016, and Welspun claimed they were made from Egyptian cotton, spokeswoman Molly Snyder said.

The investigation at Target, which routinely audits its products, finished at the end of July, Snyder said. She declined to provide details about what had triggered the probe. Target also declined to comment on how this product quality issue had not been spotted by its own internal buying team for the two years.

Read: Welspun India shares slump 20% after Target severs business ties

Target is offering a refund, in the form of a gift card, to affected customers who either have a loyalty card or bought the products online.

On Monday, Welspun said it would hire a major accounting firm to review its supply processes.

Some retailers such as Swedish home furnishing giant IKEA AB said they would continue doing business with Welspun while awaiting the outcome of the company’s probe.

Read: Welspun hits lower circuit again as Wal-Mart orders review, but IKEA to continue business