Target Cuts Ties with Textile Manufacturer After Severe Mishap
By now we’re all well aware of the risks associated with outsourcing products and materials: poor communication, poorer cost control, and lacklustre quality are all possible snags that can come up in a brand or retailer’s supply chain. Unfortunately for Target, it’s back to the drawing board when it comes to their cotton-based home goods. Why? The big box retailer recently discovered that the Egyptian cotton they thought they were getting from their manufacturer of two years was, well, fake.
After allegations were made that Welspun sold pillowcases, bed sheets and towels made of a cheaper cotton than was advertised, investigations were immediately launched – including by Wal-Mart, Macy’s, Bed Bath and Beyond and JC Penny, all major clients of Welspun. For their part, Welspun did appoint Ernst and Young, a major consultancy firm, to audit their supply chain.
On August 19th, after tests came back confirming the worst, Target cancelled their contract with Welspun. The whole situation has had a devastating ripple effect on the company – 95% of Welspun’s revenue comes from international clients alone (including the aforementioned retail chains). Since the news broke out of the mishap, Welspun has reportedly lost 36% of its market value and stocks have gone down about 20%.
For what it’s worth, Welspun is doing their best at showing accountability for their actions. In an act of transparency, a transcript of a conference call discussing the matter with investors was made public. During the call, Managing Director Rajesh Mandawewala states, “Without any ambiguity the fault is on our side and […] we have to take responsibility for it.” While he offered no explanation for why the falsely-labeled Egyptian cotton sheets turned out to be of a lesser quality cotton, he further explained, “In the manufacturing process, we source a lot of materials, raw materials at the intermediary stage as well from various vendors, be it cotton, cotton yarn or greige fabric. We thus want to revalidate all our supply processes and systems. Although growing volumes and programs have resulted in increasing complexity, an issue of this nature is unacceptable to us.”
While being open and honest is definitely a good call, it still remains to be seen whether or not Welspun has or is doing enough to quell concerns regarding their integrity as a brand and if they will ever be able to fully come back from this situation. Target on the other hand, may already have eyes on a competing manufacturer.
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