A worker at the retailer had warned Welspun's sheets may not be 'Egyptian cotton'

By Sarah Nassauer and Preetika Rana 

Wal-Mart Stores Inc. and other retailers are investigating whether their Egyptian cotton sheets are authentic, but this isn't the first time the retail giant has had questions about that product.

In 2008, a Wal-Mart employee warned headquarters staff that the same supplier currently in question, Welspun India Ltd., might have been selling the world's largest retailer fake Egyptian cotton bed sheets, according to former employees and documents reviewed by The Wall Street Journal.

At its Arkansas headquarters and in India over several months at that time, internal investigators and at least one hired externally by Wal-Mart interviewed the company's employees and queried Welspun for proof that the product was authentic and should carry the premium label, according to the documents and former employees.

Egyptian cotton is prized for its softness and durability. Towels, sheets and shirts made from the cotton often command a premium price.

Wal-Mart on Thursday declined to comment when asked about a 2008 investigation. It is unclear how the investigation turned out. But the chain has continued to do business with Welspun. Today, the Indian company makes some of Wal-Mart's Better Homes and Gardens brand Egyptian cotton sheets.

Welspun wouldn't confirm or deny that Wal-Mart questioned the authenticity of its Egyptian cotton in 2008. "As a supplier, we undergo many checks by all our customers in routine business," the company said. "We remain committed to our customers and any concerns raised by them are addressed from time to time."

Egyptian cotton sheets have become a heated issue among U.S. retailers in recent days after Target Corp. on Aug. 19 said it was pulling thousands of the products off its shelves and cutting ties with Welspun after it found the manufacturer had used non-Egyptian cotton for about two years.

Wal-Mart and other big Welspun customers, including J.C. Penney Co. and Bed Bath & Beyond Inc ., said this week that they were opening investigations.

"It does raise concerns when a big, reputed supplier comes under the scanner," said Debashish Mukherjee, who heads consulting firm A.T. Kearney's consumer and retail practice in India. "But it goes two ways: Retailers have an equal responsibility in ensuring the compliance standards are consistently met."

Wal-Mart's 2008 investigation shows how for years questions about authenticity have dogged the global cotton industry. Traders, producers and consultants in the cotton industry have suspected many products labeled as being derived from Egyptian cotton were fakes.

Egypt produced less than 1% of the global cotton supply last year, according to the U.S. Department of Agriculture. Output has suffered amid political and economic upheaval in recent years.

Cotton Egypt Association, which licenses the trademark and certifies suppliers, estimates 90% of products labeled "Egyptian cotton" are inauthentic. It recently started promoting DNA testing to verify the origin of the fiber. Still, retailers have rarely publicly rebuked suppliers over the issue.

It isn't clear whether other retailers in the past have investigated products supplied by Welspun.

In a call with investors this week, Welspun Managing Director Rajesh Mandawewala took responsibility for the mishap. "Without any ambiguity, the fault is on our side," Mr. Mandawewala said. He declined to say what specifically had gone wrong, saying only that "in the manufacturing process, you source a lot of materials at various stages."

Welspun has commissioned an accounting firm to review its supply chain so it could emerge "stronger from this process with tighter controls and robust processes," according to Mr. Mandawewala.

Welspun has been regarded as an Indian manufacturing success story, transforming itself over the years from a small yarn-spinning business started in 1985 into one of Asia's largest textile makers. Large U.S. retailers flocked to the company as a relative safe haven from the production issues that have troubled some local firms in developing countries.

The price of shares in the Indian company have halved since Target's allegations surfaced last week. Welspun's shares fell 8% on Thursday in Mumbai.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Preetika Rana at preetika.rana@wsj.com

 

(END) Dow Jones Newswires

August 26, 2016 02:48 ET (06:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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