Shareholders at Welspun India were in for a shock on Monday, August 22: Within minutes of the market opening, the company’s stock fell 20 percent on news that US-based retailer Target Corp had terminated its business with the company. The story was repeated over the next two days, with the stock declining a further 20 percent each day.
Target had, on August 19, issued a statement informing buyers of a full refund on its Fieldcrest label of Egyptian cotton 500-thread count sheets. After an extensive investigation, the company had discovered that Welspun Global Brands had substituted Egyptian cotton with the non-Egyptian variety. The sheets in question were manufactured between August 2014 and July 2016.
In a conference call with investors, Welspun unequivocally took the blame. “So there has been, let’s say, a failure on our part, so without any ambiguity the fault is on our side,” said Rajesh Mandawewala, managing director, Welspun India. Although he did not explicitly say so, he suggested that the problem was due to inadequate systems and processes. Within days, EY was appointed to review Welspun’s processes.
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(This story appears in the 30 September, 2016 issue of Forbes India. To visit our Archives, click here.)
If India wants to become a sizeable player in manufacturing, it needs to sharpen its quality assurance and it needs to be more proactive in moving away from family managed business. Clearly at Welspun India, there was a lack of accountability. An auditor probe is not required to let you know the obvious, that someone in the manufacturing management arm was taking their responsibilities too lightly and not ensuring due care and diligence. The board's inability in sacking top management (partly due to the management owning shares in the company or holding company), leaves much to be desired.on Sep 30, 2016
This was about stock market sufferings! What impact will it have on online e-commerce stores? Will people trust Indian textile products? India has been one of the biggest textile resource since ages. This case really made me worry.on Sep 23, 2016
The subject stock is likely to gain once the problem gets resolved. It is a matter of concern for the shareholders once the price got reduced at about 40%. It becomes very necessary and it shall be treated as buying opportunity.on Sep 17, 2016
When Egyptian cotton represents just 1.5 per cent of world production, USA retailers must know this and therefore must accept cotton of equivalent quality & so why they should go after the name? Quality is important and not the name.on Sep 16, 2016