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Cotton


Things more or less “spun” out of control for Welspun India Ltd., the textile company accused of selling fake Egyptian cotton sheets to several U.S. retailers.

Welspun’s share price has dropped more than 50% since Friday when the allegations first surfaced. Now the company says it is “modifying its supply chain and reviewing its practices” in order to address the problem.

So much for Welspun. What about the companies who said they ended up with bogus goods? What are these retailers doing to head off future problems?

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Investigations

For starters all companies involved, including Target Corp. (NYSE:TGTC), Wal-Mart Stores Inc. (NYSE:WMTC), J.C Penney Co. (NYSE:JCPD) and Bed Bath & Beyond Inc. (NASDAQ:BBBYC) have all said they either have or would soon launch investigations.

It helps that Welspun Managing Director Rajesh Mandawewala has taken full responsibility for the problem. In a call to investors Mandawewala said, “Without any ambiguity the fault is on our side and so it is, let’s say, the error is from our side so I guess we have to take responsibility for it.”

Global Supply Chain Problems

Although at this point nobody seems to know the specific cause, one thing is clear – a global supply chain involving multiple countries and even continents does not help.

Just ask Target which is finding out firsthand how difficult it is to guarantee quality through multiple-layered supply chains. Welspun has a good reputation. Its suppliers, none-the-less seem to have managed to push inferior cotton into the system.

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Stateside Reaction

A quick look at actions taken by the main retailers involved may reveal how much – or how little – this incident may stick on the U.S. side of the fence.

It’s worth noting that the results of all investigations – by Welspun as well as the U.S. retailers – may go a long way toward easing customer and investor concerns for all involved.

Target’s first action was to dump Welspun as a supplier. The company also offered to refund customers who had bought sheets between 2014 and 2016.

As part of its investigation, Wal-Mart Stores are pouring over certification records for cotton it obtained from Welspun. The company further said it would hold ongoing discussions with Welspun and “handle appropriately” discovery of any additional issues.

Like Wal-Mart, J.C. Penney seems to be awaiting results of its investigation before taking potential punitive action against Welspun. In a statement to Fortune, JCP said, “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.”

Finally, Bed Bath & Beyond noted that it had ordered an external audit of textiles bought from Welspun and sold in its stores. A spokeswoman for Bed Bath & Beyond told Reuters that the retailer would pursue an investigation and take appropriate action as required.



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