Wal-Mart Stores Inc. (NYSE:WMT) has reportedly started reviewing cotton certification records of Welspun India, one of its bedsheet suppliers, after peer Target Corp. (NYSE:TGT) pulled its Welspun products from shelves, following the discovery that they were mislabeled.
Welspun makes towels, sheets, rugs and carpets for 18 of the top 30 global retailers. It manufactures one out of every five towels sold in the U.S. and sells to major customers like J.C. Penney (NYSE:JCP) and Macy's, Inc. (NYSE:M) , according to Bloomberg.
Wal-Mart is Welspun’s third-biggest customer, according to data compiled by Bloomberg. Welspun currently supplies a number of products, including sheets, to Wal-Mart. However, currently, Welspun is undergoing investigations by Wal-Mart after Target terminated all business with the Indian supplier last week. Welspun India's shares plunged 20% on Tuesday after the announcement. Target stated that its extensive investigation confirmed that Welspun had been selling cheaper sheets and pillowcases as premium Egyptian cotton.
Egyptian cotton has a longer fiber that creates a softer thread compared to other cotton. It often carries a higher price because shoppers consider it to be of better quality.
Welspun, on its part, said that it was investigating the product specification issue and would hire a Big Four accountancy firm to review its supply processes. The Indian company fears the loss of other customers like Wal-Mart after Target’s withdrawal.
The Bentonville, AR-based retail giant plans to hold additional conversations with the supplier, and take a call if any issues are discovered.
Wal-Mart currently carries a Zacks Rank #3 (Hold).
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