Target Said to Mull Welspun Contract Shift to Rival Trident

(Bloomberg) -- Target Corp. is considering shifting its bedsheets orders to Trident Ltd., a supplier among those that may win some of the $90 million in business that rival Welspun India Ltd. lost after it was caught passing off cheaper sheets as premium Egyptian cotton, according to people familiar with the discussions.

The U.S. 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 as much as 19 percent, the biggest jump in more than a year, and traded at 58.55 rupees as of 12:58 p.m. in Mumbai. 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 49 percent this week and has seen $750 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 more than $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 on 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.

--With assistance from Rachel Chang To contact the reporters on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net, Siddharth Philip in Mumbai at sphilip3@bloomberg.net, Shannon Pettypiece in New York at spettypiece@bloomberg.net. To contact the editors responsible for this story: K. Oanh Ha at oha3@bloomberg.net, Kenneth Wong at kwong11@bloomberg.net, Candice Zachariahs