Target seeks rival supplier after Welspun sheets scandal

Bloomberg

Target Corp. is considering shifting some orders to Trident Ltd. after it terminated $90 million of business with rival supplier Welspun India Ltd. for labeling cheaper bedsheets as premium Egyptian cotton, according to people familiar with the discussions.
The US retail giant has begun sampling sheets manufactured by Trident, according to the people, who asked not to be identified as the talks are confidential. Trident, based in the northern state of Punjab, currently supplies terry towels to Target and is one of the few Indian companies with the capacity to produce more bedsheets, they said.
“We have previously shared that we were actively working with existing vendors on our matrix to determine where we move the business. Trident is one of our current vendors,” said Target spokeswoman Molly Snyder. “It would be premature to speculate on how we will plan for, and distribute our business.”
Trident shares surged 13 percent to 56.45 rupees, the biggest jump since November in Mumbai trading Friday. A Trident representative declined to comment. Welspun, which said on Friday it’s working with Ernst & Young LLP to review its supply chain, dropped for a fifth consecutive day. The stock is down 52 percent this week and has seen about $800 million of its market value wiped out.
Target on Aug. 19 severed business ties with India’s largest home textiles exporter after discovering that sheets and pillows labeled as premium Egyptian cotton were actually made with another type of cotton. The retailer pulled the items from its stores and offered customers refunds. Other Welspun clients, including Wal-Mart Stores Inc., Bed Bath & Beyond Inc. and J.C. Penney Co., said they are reviewing Welspun’s product claims and certification records.
Trident, with a market value of about $430 million following today’s surge, plans to make a big push into bed and bath linens and estimates they will comprise about 80 percent of its textiles revenue in two years, according to its most recent annual report.

The company shares many of Welspun’s customers, including including Target, Wal-Mart, J.C. Penney and Macy’s Inc., according to data compiled by Bloomberg.
“There is a good chance that Trident may step into Welspun’s shoes,” said Arun Kejriwal, a director at Kejriwal Research & Investment Pvt. in Mumbai. “This is even more so as new capacity set up by Trident is yet to be fully utilized. They are currently operating under 50 percent. They can ramp up quickly.”
Welspun’s business with Target totaled $90 million and the mislabeled products constituted 10 percent of that revenue, Managing Director Rajesh Mandawewala told analysts Monday. Indian manufacturers have a 47 percent share of the worldwide bedsheets market, and they have an 8 percent cost advantage over Chinese suppliers, he said last August.