Collaborations are what made Supreme sale worth $2.1 billion to VF
Why did VF buy Supreme for $2.1 billion? Can they recoup their mega-acquisition costs amidst a chaotic retail environment? Just what makes Supreme one of the most successful fashion brands even during a pandemic induced retail apocalypse?
Beloved streetwear purveyor and skate giant Supreme has been sold to activewear conglomerate VF for $2.1 billion and the question on everyone’s mind is that in an intensely challenging covid-era economic environment, can the parent company of Vans, Timberland and The North Face, recoup their mega-acquisition a chaotic retail environment?
“We see no upside limitation on the brand. We see a clear line of sight to a billion dollars.” – VF Corp. Chief Financial Officer Scott Roe to investors
Indeed, the Supreme x VF is one of the most significant acquisitions in the luxury industry, and certainly the most high profile sale to hit the streetwear sector. By volume, VF is among one of the largest apparel group in the world and Supreme is the most visible exemplar of skate culture ever to enter and subsequently dominant mainstream fashion.
What is VF corp getting with $2.1 billion Supreme acquisition?
In a call with investors, VF Corp. Chief Financial Officer Scott Roe believes that VF can leverage its size and clout against Supreme’s brand to roughly double sales to $1 billion. “We see a clear line of sight to a billion dollars,” he said.
Born from East-Coast (that is to say Californian) Skate and Surf culture, Streetwear began its roots with basics tees and denims eventually dressed with graphic logos and motifs pioneered by brands like Japanese A Bathing Ape and Supreme. Nicknamed “Chanel of streetwear”, Supreme achieved cultural dominance, starting with a single store on Lafayette Street in 1994 before growing into a cultural and then later a pop cultural phenomenon built on a foundation of street cred and a pioneering business model – exclusive “drops”: limited edition, cool products that had approachable, albeit expensive (but not exorbitantly so) pricing.
Who comprises the streetwear or hype audience? According to the Urban Dictionary, It is a person who follows a trend to be cool or in style. A person who wears what is hyped up, collecting clothing and accessories for the sole purpose of impressing others. No better way exists for the commercial survival of heritage luxury brands by appealing to a younger generation of shoppers without alienating the old guards.
Founded by James Jebbia, commercial success is the anti-thesis of street cred, yet somehow Supreme has balanced its brand profile on innovative collaborations that not only boosted its credibility but also grew its desirability. In less than 30 years, a single street shop in New York became a global business valued over $1 billion, bolstered by mega blockbuster collabs with the biggest names in luxury.
“This is a really unique business model that works really well,” – VF CFO Scott Roe
VF wants in on the magic of Supreme’s retail strategy
For billion dollar revenues, Supreme operates only 12 retail points in total across three continents: America, Europe and Japan. The majority of its ‘hype’ comes from viral content proliferated across social media which then sends major traffic to their ecommerce platform, as a result Supreme generates over 60% of its sales online, making it especially resilient during the covid pandemic which has largely decimated retail including giants like Nordstrom and Macy’s. Even in the retail carnage accelerated by global pandemic lockdown measures, Supreme has enjoyed growth, albeit at a slower pace and still retains significant cash positions to weather the pause in retail and commerce.
That said, eCommerce success requires real world hype: think about cult fandom resulting in queues outside Apple stores. Stroll down Lafayette Street on drop-day Thursday in New York’s hipster district and you will see lines around the block, waiting to get inside the Supreme store. A cult fan following ready to empty their wallets for the latest releases; The more enterprising among them will eventually resell the merchandise at over 1200% of their retail price.
Supreme mastered the art of limited supply. Its eCommerce strategy is directly tied into its retail strategy doesn’t sell in large stores or brand chains, hence keeping its availability limited while maintaining a sense of authenticity and credibility. This in turn drives up desirability and demand to heady levels. But here’s a key distinction: Supreme maintains its street cred by not succumbing to greed and raking in the cash by subverting demand-supply economics. Instead of charging premium prices, Supreme keeps their “merch” relatively affordable. This ‘foregone revenue’ is converted into more hype as customers snap them up and more brand equity because the brand didn’t “sell out”.
Supreme’s Art of Consumer Desire: You chase us
Why queue in the age of the internet when information on launch dates are so readily available? Supreme’s lookbook shows you what the beloved streetwear brand is going to drop in the next few months, you don’t get to know when – even when you are on the mailing list.
“Each week you will be notified of a location where you can go and sign up for your spot on Thursday’s line. Once you receive the email you can proceed directly to the location given.” – Supreme sub-Reddit forum
On the week of the drop, subscribers will get to know the location and book a spot in the queue. Furthermore, Supreme has been known to send exclusive updates to select a special group of customers, and the mystery surrounding how this select group of privileged customers is chosen further generates hype. It’s been the secret formula for massive commercial success without the knockdown effects of being perceived as “selling out”. In fact, the strategy is so effective, that even large corporate deals and buy-ins don’t generate the usual tension between its rebellious skateboard “fight the power” clientele and the brand’s business ambitions.
Even then, Founder James Jebbia kept initial investment from private equity Goode Partners on the down-low and a later 2017 investment from The Carlyle Group became major news because $500 million isn’t particularly easy to keep quiet. The VF deal will see Supreme’s private equity investors bought out. Jebbia and his senior executive team will stay on at the company and are expected to grow that figure 8 to 10 percent by 2024.
“We are not coming in to make changes. We’re here to support and enable…a high performing business.” – VF CEO Steve Rendle
According to VF, Supreme generates more than $500 million in revenue, more than double its $200 million in 2017. Covid accelerated the trend of what VF Chief Executive Rendle calls “casualisation”. He says, “consumers really looking to and engage with authentic brands with great meaning, that positions Supreme to be very, very strong.”
Being in the VF stable which already has streetwear staples like Vans, Timberland and The North Face (all of whom have had collaborations with Supreme in the past) will see the group cement their position in a fast-growing and competitive genre estimated to be a $50 billion market. Supreme will benefit from VF’s supply chain and operational support, arguably, it could benefit from the group’s digital platforms but it is more likely VF will be looking to study Supreme’s digital model.
The key for VF now is carefully grooming its latest purchase and nurturing its ambitions in order to not lose the authenticity which makes it the darling of the fashion-collab world.
Supreme: A History of Collaborations
Supreme teamed up with Brooks Brothers, the oldest retailer in America, back in 2014.
Long before Yeezys were cool, the then 8 year old Supreme joined forces with sports behemoth, Oregon-based Nike
Supreme celebrated its tenth anniversary with an ultra-rare T-shirt emblazoned with an image of British model Kate Moss in a bikini. It’s rare when it appears on market and often traded before it’s even listed for sale.
In 2006, Supreme “inceptioned” itself with another collaboration with Moss, this time, she wears a Supreme tee and leopard print jacket on a printed Supreme tee. It’s still possible to get this tee from auction sites like StockX.com from time to time. Expect to pay north of $551.
2017 Supreme x Louis Vuitton. Nuff’ said.
Peak Supreme hype was achieved when the brand collaborated with Oreo, creating red biscuit editions of the iconic cream cookie. A pack of three Supreme x Orea cookies retailed for $8 – hence our steadfast refusal to call Supreme merchandise “cheap”, you can afford $8 but something which usually costs $0.60 retailing at that price is by no means “inexpensive”. Nevertheless, you can get these cookies, likely already expired, for $17,000 on auction sites. It briefly hit $92,000 on eBay in February this year.