Bed sheets scandal is roiling the cotton industry
HUDDLED inside Target Corp.’s headquarters in downtown Minneapolis, a team of investigators spent the summer trying to answer what should have been a simple question: What were hundreds of thousands of the retailer’s sheets actually made of?
What they discovered has undermined trust in a global luxury product and set off a salvo of class-action lawsuits that have created a king-sized public relations challenge for the Indian textiles industry and the US companies it supplies.
Turns out that major American retailers, including Target and Wal-Mart Stores, have been selling premium-priced sheets purportedly made of Egyptian cotton – a byword for luxury in linens – but that may in reality be woven with lower-quality cotton blends.
Three suits seeking to be certified as class-actions have been filed against supplier Welspun India Ltd. – and a separate one last week was directed at Wal-Mart. That complaint, filed in New York Nov 8 by customer Dorothy Monahan, accuses the world’s largest retailer of questioning the fiber content of Welspun’s products as early as 2008, but not halting sales until after Target did so in August.
Wal-Mart said it “vigorously defend” itself.
The other lawsuits, all filed in the US against Welspun, allege the company fraudulently labeled its bed sheets as Egyptian cotton. Welspun declined to comment on the suits. Managing Director Rajesh Mandawewala told will analysts during a conference call in August that “the error is on our side so we have to take responsibility for it.” Target, meanwhile, hasn’t been sued.
“The marketing has created this image in our heads that high-quality cotton and Egypt are synonymous,” said Louis Rose, a Memphis, Tennesseebased cotton industry consultant. “Consumers should be sceptical of these marketing claims. They’ll be under a lot more scrutiny now.”
Target has cut ties and ended all of its US$90 million in annual business with the Indian manufacturer, and WalMart Stores has stopped selling Welspun sheets that had been labelled 100 per cent Egyptian cotton.
Bed Bath & Beyond Inc. followed suit last Monday, sending Welspun’s stock 4.5 per cent lower in Mumbai the following day. The shares have tumbled about 40 per cent since Aug 19, when Target announced its decision.
“The issue was about traceability, not about quality,” said Welspun Group Chairman Balkrishan Goenka at a briefing in Mumbai last Tuesday, adding that the company’s sales growth next fiscal year will be “muted” due to the controversy.
The fake Egyptian sheet episode came to light after exhaustive work by Target investigators who analysed sheet fibres under microscopes and tracked their journey through a global supply chain. The probe found that 750,000 of Target’s “Egyptian cotton” sheets, sold for as much as US$75 a pop, didn’t contain any Egyptian cotton at all, but an amalgam of lower-quality fibres from cheaper sources.
That July discovery touched off a scandal spanning from Minnesota to Mumbai and Cairo that threatens the future of Welspun, part of a US$3 billion conglomerate headed by Goenka. — WP-Bloomberg
What they discovered has undermined trust in a global luxury product and set off a salvo of class-action lawsuits that have created a king-sized public relations challenge for the Indian textiles industry and the US companies it supplies.