How Would A Trans-Pacific Partnership Affect Retailers?

A new report by Deutsche Bank focuses on the potential Trans-Pacific Partnership (TPP)and what it would mean for the North American footwear and apparel business. According to the report, the agreement could have a major impact on many of the big names in the space.

What is the Trans-Pacific Partnership?
The TPP is a potential trade agreement between the United States and 11 other countries that would eliminate tariffs. According to analysts, Vietnam is a potential key player in the negotiation process. Vietnam is currently the second largest apparel exporter to the U.S., but its exports are subject to an 11.5 percent tariff.

Other apparel exporters such as Mexico and Central American countries compete with Vietnam, but they are not subject to tariffs.

Timeline
The current plan for the TPP is for Congress to vote on a bill that would fast track the TPP to the President by the third week of June. Depending on the length of the negotiation process with the 11 countries involved, analysts believe that the TPP could be put to a vote by the end of 2015, but would likely not be implemented until at least 2017.

Potential impact
Assuming that Vietnam’s 11.5 percent tariff is eliminated, analysts estimate that Nike Inc NKE stands to gain the most from the TPP and could see gross margins increase by about 4.0 percent. V.F. Corp VFC, Under Armour Inc UA, Lululemon Athletica Inc LULU and Perry Ellis International Inc PERY could all see gross margins increase by up to 2.5 percent.

Stock picks
Deutsche Bank lists Under Armour, Nike, and PVH Corp PVH as its top footwear and apparel stock picks.

Deutsche Bank also has Buy ratings on V.F. Corp and Michael Kors Holdings Limited KORS. It has Hold ratings on Lululemon, Perry Ellis, Coach Inc COH, Ralph Lauren Corp RL, and Tiffany & Co TIF.