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Welspun Says Walmart Will Continue To Source Non-Egyptian Cotton Products

Walmart said it will not cut ties with Welspun India after the manufacturer was unable to assure the retailer its products were made of authentic Egyptian cotton

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Home linen major Welspun, which was caught in trouble recently after some of its major US clients stopped sourcing its products, said on Saturday Walmart will continue to source from it barring those products made of Egyptian cotton.

Walmart last month followed fellow US retailer Target in recalling Welspun bedsheets and pillow covers after it came to light that the home linen it sold saying as made of Egyptian cotton were not in fact made from the premium yarn typical of the West Asian nation.

Walmart used to sell Welspun's sheets and pillow cases under the labels of Better Homes & Gardens and Canopy.

"Welspun has not been able to assure us the products are 100 percent Egyptian cotton, which is unacceptable," Walmart said in a statement on Friday. The company will pull the products from its stores and website.

Walmart said it will not cut ties with Welspun but will work with them to implement strong controls and better label the products. The retailer will offer customers, who purchased the products, a full refund.

Egyptian cotton is prized because the length of the cotton fibers are longer, resulting in a finer, lighter more durable fabric and longer-lasting, higher-end clothing.

In a BSE filing on Saturday, Welspun India, which has appointed consultancy firm E&Y to look into the alleged lapses, said, "Walmart has assured us to do business together. We are working to implement stronger controls and to better label the products we supply to them."

The BK Goenka-led company further said, "The product line in question with Walmart accounts for around 1.5 per cent of our business."

"We take the current traceability concerns around some of our product lines very seriously, and have been working closely with our retailer partners to support their actions towards a comprehensive resolution programme," Welspun said.

The Bentonville, Arkansas-based Walmart on the other hand said in a separate statement that "Welspun has not been able to assure us the products are 100 per cent Egyptian cotton, which is unacceptable. While the sheets are excellent quality, we are offering our customers a full refund."

The Amercian retail giant was quick to add that it isn't cutting ties with Welspun. Instead, it is working with Welspun to implement strong controls and better label the products.

The Egyptian cotton product portfolio accounts for 6 per cent of Welspun's annual business. The company posted total net sales of Rs 5,387.66 crore in 2015-16.

The problem started after Egypt began to report massive drop in cotton production. As per reports, it produced just 1 per cent of the global cotton last year.

The US-based retail chain Bed Bath & Beyond and JC Penny are also conducting third-party audit of items sourced from Welspun, following lapses in supplies by the Gujarat-based firm to Target.

Last month, Target Corporation, after extensive investigation, confirmed that Welspun substituted another type of non-Egyptian cotton when producing bedsheets and pillow cases between August 2014 and July 2016.

The retailer had said that as soon as its investigation confirmed the substitution, it pulled all remaining product from Target stores and and offered the customers full refund.

Target said it would end all business with Welspun, one of the world's biggest textile manufacturers, as the vendor was sending it phony Egyptian-cotton sheets.

Sales to Target was around $90 million in 2015-16 for Welspun and accounted for almost 10 per cent of its overall business.

A Welspun spokesman said that the total Egyptian cotton-based sales constituted only about 6 per cent of its $900 million sales.

Others among top five of Welspun's customers like Bed Bath and Beyond and JC Penny had said they would also review the matter.

Welspun is the biggest exporter of terry towels and bed linen to the US and the company says every fifth towel sold in the US is made by it and two-thirds of its total business comes from the American markets.

After Target's recall in mid-August, Welspun's shares tanked by 47 per cent and touched a low of Rs 46.50 on August 30. But since then it has recovered to Rs 59.10 and the share closed at Rs 56.60 on Friday on the BSE.

Walmart is one of Welspun's largest customers, while Target, JC Penney, Macy's Inc, Bed Bath and Beyond Inc are also leading customers.

According to the US agriculture department, Egypt produced just under 1 per cent of global cotton last year. As per the Egypt Cotton Association, which licences the trademark and certifies suppliers, 90 per cent of products labelled as `Egyptian cotton' are inauthentic.

The $3-billion Welspun Group has interests in textiles, steel, pipes, energy and infrastructure.


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