TGT Target Corp

NEW DELHI—Bed Bath & Beyond Inc. said Wednesday it had started an audit to determine if an Indian supplier had sold it authentic Egyptian-cotton products, days after Target Corp. alleged the same vendor had sold it fraudulent Egyptian-cotton sheets.

Bed Bath & Beyond becomes the third American retailer, after Wal-Mart Stores Inc. and J.C. Penney & Co., to open an investigation into Welspun India Ltd. this week. The Indian company is under fire for allegedly shipping sheets labeled as made with Egyptian cotton to the U.S. when they were made using another source of cotton.

While Welspun has reaffirmed products in Bed Bath & Beyond's stores are made with Egyptian cotton, Bed Bath & Beyond said it has "engaged an independent third party to perform an audit of the supply chain to confirm this information. We will aggressively pursue our investigation and take appropriate action, if needed."

Welspun on Saturday said it had hired an accounting firm "to audit our supply systems and processes" and "investigate the root cause" of the problem. "This is an issue of highest priority for us and we will take all necessary steps to address it," the company said. Welspun had no additional comment on Wednesday.

Cotton grown and sourced from Egypt is believed to be softer and more durable than other varieties, and is sold by companies seeking to charge a premium on home-furnishing products.

Target said on Friday it had severed ties with Welspun after it found the company "substituted another type of non-Egyptian cotton when producing" sheets for it between August 2014 and July 2016. It said about 750,000 sets of sheets under the Fieldcrest brand were affected, and that it had pulled the product from its stores.

J.C. Penny and Wal-Mart, two other big Welspun clients, said this week they would conduct their own reviews. "JCPenney is conducting a thorough investigation of its Welspun textiles to ensure the integrity of its product claims," the company said Wednesday.

Welspun is one of Asia's biggest textile manufacturers, and makes everything from bed linen and bath rugs for stores in the U.S. to towels for the Wimbledon tennis tournament. American retailers accounted for two-thirds of Welspun's $878 million in sales in the year ended March 31.

Welspun's share price has halved after the Target allegations surfaced on Friday. Trading in its shares was suspended on Mumbai's stock exchange Wednesday, after the stock fell to its maximum daily limit for a third-straight day.

Write to Preetika Rana at preetika.rana@wsj.com

(END) Dow Jones Newswires

August 24, 2016 14:25 ET (18:25 GMT)

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