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Reuters/Natalie Behring
Are those sheets you bought?
QUALITY CONTROL

J.C. Penney, Bed, Bath and Beyond and Walmart start investigating Indian firm after Target cuts ties

By Madhura Karnik

For textile maker Welspun India, it’s been a tough few days–and they will likely get tougher.

Shares of the Mumbai, India, firm have dropped 43% in the last seven days on the BSE after American retailer Target said it would drop the firm as a supplier because the Indian company substituted cheap cotton for 100% Egyptian cotton in sheets shipped under the Fieldcrest label. Now US retailers J.C. Penney, Bed, Bath and Beyond, and Walmart say they are investigating products supplied by the firm.

New investigations

“JCPenney is conducting a thorough investigation of its Welspun textiles to ensure the integrity of its product claims. It is too early in our review process to determine what actions may be necessary,” Carter English, a spokesperson for J.C. Penney, said in an email.

Bed, Bath and Beyond, which is Welspun India’s biggest customer, has also initiated a review. “Welspun has reaffirmed to us that the Welspun product carried in our stores is Egyptian cotton. To further assure ourselves and our customers, we have engaged an independent third party to perform an audit of the supply chain to confirm this information,” said spokesperson Leah Drill in an email.

Walmart told The Wall Street Journal that it is “reviewing” Welspun India’s certification records. Walmart hasn’t replied to an inquiry from Quartz. Macy’s, the American department-store chain, is also closely watching. “Welspun does produce some of Macy’s private brand products, but they are not 100% Egyptian cotton. Of course, we continue to monitor the situation,” Jim Sluzewski, a Macy’s spokesperson, said in an email.

Some customers such as Swedish retailer Ikea aren’t discontinuing business with Welspun but are on alert. Ikea told Reuters that Welspun India is a supplier, and it hasn’t any issue with the quality. Ikea will monitor the situation, too.

Analysts worry

These retailers are critical for Welspun India. The Egyptian cotton sheets business accounts for about 6% of revenue at Welspun India, according to Elara Capital, a brokerage. One of the biggest textile makers in India, the firm gets 95% of its revenue from exports.

Welspun India said it has commissioned an audit, but analysts said the company did not provide many details during a call on Aug. 23. The call ”was vague on facts and threw up more questions than answers,” analysts at Elara wrote in a note.

“(Welspun’s) management failed to assuage concerns on how Target’s internal audit and third-party quality checks appointed by it failed to raise any alarms over a period of two years,” analysts Sumant Kumar and Anuja Barve wrote. They also estimate that Welspun India might have to pay a one-time penalty of between 1% and 2% of its total revenue. Elara has downgraded its rating on the stock to “sell.”

Here’s the movement of Welspun India’s share price during the last week.

Welspun hasn’t replied to an email seeking details from Quartz.