2014 Hot Topics
Re-Shoring/Near-Shoring Trends
Implications for AAPN
Prepared for:
2014 AAPN Annual Meeting
Miami, FL
May 2014
Roger J. Gilmartin
Managing Director
O'Rourke Group Partners LLC 1

 Trans-Pacific Partnership (TPP)
 Timing, Terms—Far Reaching Consequences
 Re-Shoring/Near-Shoring & New Textile
Investments
O'Rourke Group Partners LLC 2

 Key rung on the ladder of planned industrialization.
 Employs 2.5 million direct + indirect.
 10% of the Industrial Work Force.
 3 million by 2020.
 Every US$ 1 billion creates 150,000 new jobs.
 Significant in-balance between textile & garment capacity.
 75 to 80% of fabric is imported.
 Mostly China
O'Rourke Group Partners LLC 3

 Yarn +Fabric imports from China > US$ 4
Billion
 US Yarn+ Fabric exports < $100 million.
 A “command economy”.
 VINATEX
 28 Mills, 44 Garment Companies
 160K tons of yarn, 280 million sq meters of fabric, 330 million garments.
 3500 stores
 210,000 employees.
O'Rourke Group Partners LLC 4

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O'Rourke Group Partners LLC 5

 Today, the main US Regional FTA Partners
(Mexico, CAFTA-DR, Peru, Colombia), successfully compete with low cost Vietnam due to tariffs/duties currently in place.
 Removal of Vietnam duties effectively eliminates any cost competitive reason for sourcing in the region, unless:
 Initial duty reduction is very low.
 Total duty phase-out is very long term.
 Yarn forward rule prevails.
O'Rourke Group Partners LLC 6

 Vietnam hourly labor cost (and other Asian countries) increasing at faster pace than US regional partners:
 Time is our friend.
 Effective Vietnam labor CM cost same as Nicaragua by 2018.
 Long term duty phase out will target high cost
China apparel sourcing.
 China is already over!
 Less impact to our Regional Partners in this hemisphere.
O'Rourke Group Partners LLC 7

2012 -Average Hourly Cost with Social Charges- US $
Haiti
Nicaragua
El Salvador
Guatemala
Honduras
Mexico
Cambodia
Bangladesh
Vietnam
Malaysia
China Inland
China Coast
0,43
0,51
0,00 0,50
Source: O'Rourke Group Partners Factory Audits
0,93
0,76
1,00
1,23
1,71
1,89
CAFTA-DR/Mexico Labor
Productivity approximately 75%-
85% of International Standard.
3,24
Vietnam (Bangladesh & Cambodia) Labor Productivity approximately 45%-55% of International Standard.
Vietnam (CM) will be comparable to Nicaragua by 2018.
1,50
1,98
1,78
2,00
2,38
2,50 3,00 3,50
3,79
4,00
O'Rourke Group Partners LLC 8

 Single Transformation (Vietnam still feels likely).
 Yarn, fabric inputs may be from ANY source country (i.e.
US, China, Pakistan, India, etc.)
 Regional apparel cost competitiveness eliminated.
 Significant regional apparel/textile production
(and employment) losses.
 Yarn Forward (USTR Support to Date; Likely to Prevail).
 Yarn, fabric inputs must originate from one or more of the 12 TPP PARTNER countries.
 Potential for less regional production/employment losses.
 Potential for US yarn exports to Vietnam (and other TPP countries).
 Some limited opportunity for US fabric exports.
O'Rourke Group Partners LLC 9

U.S. Textile Industry
Job Losses (direct & indirect): - 165,189
Textile Exports to Western Hemisphere: - $3.8 billion
CAFTA, NAFTA, ANDEAN region
Job Losses (direct & indirect):
Exports of Apparel to U.S.:
-1,400,975
- $4.5 billion
Total Western Hemisphere
Job Losses (direct & indirect): -1,566,164
Eight year projection – note losses continue in following years. Figures do not include collateral damage to other textile sectors (industrial, home furnishings, military) which are likely to be significant as overall industry capacity declines.
Many U.S. textile companies serve multiple sectors but require significant capacity levels in order to do so.

Duty Elimination/Phase Out Schedules
Many Scenarios . . . The Latest . . .
 Products by HS code line item, categorized by perceived level of sensitivity, then placed into three baskets:
 “ A ” – Least sensitive products; immediate duty-free treatment
 “ B ” – Moderately sensitive products; 5 year linear duty phase-out
 “ X ” – Most sensitive products; currently about 80 HS codes, representing nearly 70% of current US regional imports.
 Likely significant duty reduction day one (20 - 35%? off prevailing rates), followed by a hold on residual tariff level for extended period:
 Knit apparel: 10 years, then immediate 0 duty rate
 Woven apparel: 15 years, then immediate 0 duty rate
 Currently under discussion to be included in the “ x ” basket are mainly MMF knit and woven tops/shirts, woven bottoms, most
Cotton knit tops, cotton underwear, cotton jeans, woven pants; some wool products.
O'Rourke Group Partners LLC 11

25,0%
20,0%
22,1%
21,6%
West Region Vietnam
Regional Market Share Stability Sets In following years of decline driven by Quota Elimination, with China Quota totally eliminated 2009, narrower cost gaps and fast fashion/QR demands.
18,3% 18,1%
18,4%
17,9%
17,3% 17,4% 17,4% 17,5% 17,5% 17,5%
15,0%
9,1%
9,8%
10,8%
11,6%
12,5%
13,4%
14,4%
10,0%
8,4%
7,6% 7,7%
6,7%
5,5%
Vietnam expected to continue to gain market share, with or without TPP, driven by China Sourcing shifts to Vietnam.
5,0%
0,0%
2007 2008 2009 2010 2011 2012 2013 2014
O'Rourke Group Partners LLC
2015 2016 2017 2018
12

Projected Regional Supply--Billion SME
NO TPP 25% Initial Duty Reduction X Basket 35% Initial Duty Reduction X Basket
5,1
Regional Stability/Recovery
4,5
4,4
4,2
4,3
4,4
5,0
5,2
4,9
3,9
4,5
4,3
4,2
4,6
4,1
3,8
4,7
3,8
4,8
3,6 3,6
Assumes Total Annual US Consumption Growth of 2%.
Assumes 2015/2016 TPP Signing/Implementation.
Duty Reduction Schedule Announced/Known end of 2015.
Assumes Vietnam double-digit labor cost increases thru 2018.
3,4
3,0
2,8
In our view, 20% or less Initial Duty Reduction is NOT likely.
Such a reduction would likely result in 2018 volume of 4 billion SME.
3,6
2,8
2007 2008 2009 2010 2011 2012 2013 2014 2015
O'Rourke Group Partners LLC
2016 2017 2018 2019 2020
13

Minimum Apparel Cost Reduction Potentials
Given a 25% Duty Reduction
Cost Reduction Points Where Brand Owner/Retail
Importers Consider Sourcing Shift
China & Other Asia Suppliers Lose Share to Vietnam, as well as US REGIONAL PARTNERS
3,5% 3,6%
4,1%
5,0%
5,6%
6,1%
Cotton Tank Cotton Bottoms Cotton Knit Shirt MMF Swim
O'Rourke Group Partners LLC
MMF Bottoms MMF Knit Tops
14
Source: OGP Apparel Importer Interviews

US Imports
ALL Cotton Apparel >
332 Hosiery/socks
352 M/B Underwear
338 M/B Knit Shirts
339 W/G Knit Shirts/Blouses
336 Dresses
347 M/B Bottoms
348 W/G Bottoms
340 M/B Woven Shirts
341 W/G Woven Shirts
Total Above
W. Hemisphere Vietnam Non FTA
Million
SME
% %
Share Share
2813 21.6
375.8
56.5
%
Duty
8.7 Currently
LDP Cost Reduction Impacts
IF 25% Duty Reduction in First Year n/a 13.5
Moderate duty impact; limited category focus
762.6
39.8
628.4
54.3
355.4
28.2
17.7
2.3
276.4
25.6
163.5
8.7
48.1
7.3
6.5
3.2
2634.4
13.3
7.4
Limited duty impact but category is a target
5.3 16.5 - 19.7 Significant duty impact, but little men's focus
14.6 16.5 - 19.7 Significant duty & category target
11.6
8.4
Limited duty impact but category target
6.4
16.6
Significant duty; denim target category
10.7
16.6
Significant duty; women's target category
7.3
19.7
Significant duty; denim & workwear target
6.8
15.4
Moderate duty but limited share to take
% of West Hemisphere Total 94%
O'Rourke Group Partners LLC 15
Source: OTEXA; OGP Projection based on 9 months 2012 data; US Tariff Schedule 2012

US Imports 2011
ALL MMF Apparel >
638 M/B Knit Shirts
639 W/G Knit Shirt/Blouse
652 Underwear
647 M/B Trousers/Breech/Shorts
648 W/G Trousers/Breech/Shorts
W. Hemisphere Vietnam Non FTA
Million
SME
%
Share
1542 14.4
478.8
60
%
Share
9.3
7.3
%
Duty
Currently
32
LDP Cost Reduction Impact
IF 25% Duty Reduction in First Year
Significant duty impact
149.3
136
122
82.4
18
18
27
21
15.5
32 Significant duty impact; category target
5 10.5 - 15.6
Moderate duty impact; category target
10.3
17.3
27.9
28.6
Significant duty impact
Significant duty impact; category target
640 M/B Wov Shirts
641 W/G Wov Shirt/Blouse
636 Dresses
634 M/B Other Coats
635 W/G Coats
643 M/B Suits
659 Other Apparel
Total Above
% of Total West Hemisphere
Source: OTEXA; OGP Projection based on 9 months 2012 data; US Tariff Schedule 2012
59.1
13.4
47.5
47.9
28.7
1.8
250
1416.9
92%
44
5
3
12
6
13
10
11 29.1
¢kg + 25.9% Significant duty impact
13
14.8
16
26.9
16
27.7
Significant duty impact; category target
Moderate duty impact; category target
Significant duty impact; category target
18
10
6.4
28.2
27.3
Significant duty impact; category target
Significant duty impact
O'Rourke Group Partners LLC 16

 The TPP Agreement intends to allow for broader Short Supply inputs from non-TPP (third party) countries, whereby apparel could be made in a TPP country using non-TPP yarn and fabric.
 More than 200 products were targeted (but not yet approved).
 US government intends to eventually segregate Short Supply products into two groups:
 Permanent Short Supply Items – Little or no (US) production exists and/or unlikely candidates for new investment.
 Temporary Short Supply Items – Those where significant debate/controversy about products ’ availability in US & TPP region, or potential for new investment in such products.
 Exempt for first 3 years, then revert to yarn forward requirement.
O'Rourkei Group Partners LLC 17

)
 Would grant President Obama “ fast-track negotiating authority ” on international trade agreements.
 Administration desires to renew TPA in order to fast-
track the Trans-Pacific Partnership (TPP) trade agreement.
 Congress would be required to approve or disapprove trade agreements, with no ability to amend or delay consideration.
 NOT likely to go through.
 Surprisingly, both key Democratic and Republican groups are now opposing presidential TPA.
O'Rourke Group Partners LLC 18

 Momentum has slowed considerably.
 Multiple issues unresolved, beyond textiles/apparel.
 Japan focus is food-related and automotive.
 US government still insists a TPP will be in place by year end.
 WON’T HAPPEN!
 Congressional approval will be required; much debate and resistance expected.
 Most major participants see 2015/2016 before approval.
 Meanwhile, textile and apparel investment in Vietnam continues, and market share grows.
O'Rourke Group Partners LLC 19

Notable Regional Textile Investments
 What’s going on here?
 More to come and why?
 Gildan $250 million US expansion
 3 Other US Yarn Spinning Mills
 Grupo Karim’s Denim (former ITG Nicaragua)
 Standard Textile (US towel expansion)
 Kayser Roth (socks)
 Culp (mattress covers)
O'Rourke Group Partners LLC 20

 Net Product Cost relative to Quality and Cycle Time
Requirements--Can compete with Asia: Example
 Power Supply, efficiency + cost
 Money Supply, cheap + plentiful
 State Incentives + Support
 Beneficial Trade Legislation
 Fast Fashion: H&M, Zara, Turkey; US pays attention
 Lead Time/Inventory Requirements
 Technology Enabling Reduced Cycle Time/PLM
 Wal-Mart: $25 Billion in the decade?
 CSR Compliance; “flavor of the month”?
O'Rourke Group Partners LLC 21

Re-Shoring/Near-Shoring or Still-Shoring
 Karen Kane
 Nanette Lapore
 Nicole Miller
 Jason Wu
 Lafayette 148
 Kayser Roth
 HSM
 Joseph Abboud
 AG Jeans
 Earnest Sew
 UjEANA
 Rag & Bone
 American Apparel
 City Lights
 Fresh Produce
 Norma Kamali
 Lululemon
 Spanx
 Varsity Brands
 Teamwork Athletic
 Augusta Sportswear
 Wickers
 Under Armour
 King Louie
O'Rourke Group Partners LLC 22

 Textile + Garment Industry Growth: #1 Target for the government.
 Private Sector is the driver of Industrialization strategy.
 Duty Free access to US + EU, 16 Bi-lateral FTA’s
 “Water Tower of Africa”; Organic Cotton
 Energy: 5 cents/kwh
 Labor: 25 cents/hour
 Financing: 70% loan to 30% Equity
 Creation of Industrial Zone by Turkish Companies
 AYKA ADDISS
 AKBE; $175 million.
O'Rourke Group Partners LLC 23

 TPP: A “Watershed” for our Industry.
 Get involved in the process or others will determine your fate.
 Re-Shoring/Near-Shoring
 You already have the business model:
 Easier, Faster, Safer, Better and
Frequently, Direct Cost Competitive
 Your “ Rediscover the Americas the timing is right.
” market development vision is spot on and
O'Rourke Group Partners LLC 24

For further information:
O ’ Rourke Group Partners, LLC
109 N. Derby Avenue
Ventnor, NJ 08406
917-567-3540 www.ORourkeGroupPartners.com
MORourke@ORourkeGroupPartners.com
Roger J. Gilmartin
RJGilmartin@ORourkeGroupPartners.com
O'Rourke Group Partners LLC 25