SUPREME ACQUIRED BY VF CORPORATION FOR USD 2.1 BILLION
©Highsnobiety (Blake Rodich)
Multi-fashion player VF Corporation and streetwear brand Supreme announced that they have signed a definitive merger agreement. VF is buying Supreme from private equity firm Carlyle Group and investors including Goode Partners. The Carlyle Group paid USD 500 million in 2017 for a roughly 50% stake in the fashion brand, an investment that could double in value based on the latest transaction. VF jumped the most in 33 years after agreeing to buy Supreme for USD 2.1 billion to bolster its portfolio of apparel and footwear brands. The cash transaction is expected to be completed by year end and marks VF’s largest acquisition since it bought Timberland in 2011 for USD 2.3 billion.
Supreme, often dubbed the “Chanel of streetwear” because of the value of its cultural cachet. Launched in 1994, it started as a single store for the skateboard community on New York’s Lafayette Street, but it quickly grew into a cult brand that came to define a generation of streetwear with carefully cultivated street credibility and an innovative business model, rooted in well-crafted but accessibly-priced product and tightly controlled releases or drops. When I moved to London in 2011, connecting with the local streetwear scene and actively collecting shoes, things looked different. At that time, streetwear was still considered a fairly niche sector and one would always meet the same people, when a new release dropped. Luxury fashion and streetwear were seen as contradictory, instead of complementary. Back in the days, you would already have to queue to cop your desired items, but the community itself would manage the line and ensure that the people would get their product. You would find the occasional reseller or proxy, who is someone that is being paid to purchase a product for someone else, but this was not the norm, unlike today. Still, the Supreme brand remains a gem in the industry because of its strong community, as well as consumer minded, retail-centric, hyper-digital business model. The brand’s DTC approach, brand loyalty and global footprint complements the ‘street-inspired’ aspects of VF’s Vans, The North Face, Timberland and Dickies brands. In fact, Supreme has collaborated with VF’s brands in the past and will continue doing so, as well as work with non-VF brands.
“We are thrilled to welcome Supreme to the VF family and to build on our decades-long relationship. VF is the ideal steward to honor the authentic heritage of this cultural lifestyle brand while providing the opportunity to leverage our scale and expertise to enable sustainable long-term growth,” said Steve Rendle, VF’s Chairman, President, and Chief Executive Officer. “The acquisition of the Supreme brand is further validation of our vision and strategy to further evolve our portfolio of brands to align with the total addressable market opportunities we see driving the apparel and footwear sector. The Supreme brand will further accelerate VF’s hyper-digital business model transformation,” Steve Rendle adds.
Supreme is looking to generate USD 1 billion in revenue over time through international and Direct-to-Consumer expansion and is expected to contribute at least USD 500 million of revenue in 2020 with a gross margin of 60%, which is at the same level as that of the group's main profit driver, Vans. The streetwear label's operating margin of 20% is also close to that of Vans, which currently stands at 23%, meaning that the acquisition is consistent with VF’s commitment to active portfolio management and enhances VF’s growth, profitability and cash flow profile.
Supreme is eyeing up some interesting growth opportunities, including the development of its store network and expansion into new product categories. Apparel currently accounts for around three-quarters of the brand's business, meaning that it still has strong potential in other areas. Above all though, as a brand that is known and coveted around the world, Supreme has enormous potential for international expansion, especially seeing as the US market still represents more than half of its business. Furthermore, Supreme will help expand VF’s digital channels, which have been one of the company’s growth engines during the pandemic, with its ability to connect with customers both in brick-and-mortar locations and through its social channels. Today, Supreme operates 12 retail locations across America, Europe and Japan. But it generates more than 60 percent of sales through e-commerce, making it relatively resilient during the pandemic.
The move gives VF Corp leverage over a cult-like customer base, and a stronghold in the apparel and streetwear industry. For Supreme, an unlocking of global supply chain and business operation capabilities can take them to an even greater level. However, Supreme’s status hangs more in the balance. Streetwear hinges on exclusivity, and is based in underground culture, defining what’s cool and existing just out of reach of the masses. Supreme is the closest to mainstream streetwear as we can define it, but streetwear will always realign itself. In the world of the new luxury, aspiration is not about price, but cultural values. The likes of Supreme and Vans have created fashion that understood the cultural codes of this previously untapped market. Streetwear and outerwear in particular are about culture. They are not about clothing. They are about stories and memories. It is a lifestyle.
Founder James Jebbia has proved a savvy operator, navigating the delicate balance between street credibility and corporate success. Supreme capitalised on its brand through clever and limited edition collaborations that bolstered its desirability and generated an active and lucrative resale market for its products. “We are proud to join VF, a world-class company that is home to great brands we’ve worked with for years, including The North Face, Vans and Timberland. This partnership will maintain our unique culture and independence, while allowing us to grow on the same path we’ve been on since 1994,” he said.
Prior investments do not seem to have put off Supreme’s fans. In the last three years, revenue has more than doubled, as Supreme scaled its supply chain and opened new stores in San Francisco, Brooklyn and Lower Manhattan. A brand like Supreme is an increasingly rare and coveted asset, as the pool of exciting targets with meaningful growth potential and strong ties with the community is limited, which has not only allowed Carlyle to double their money, but also enabled me to pass on some of my collectibles to the next generation of Supreme fans for more than 10x the retail price.