Can Streetwear Darling Supreme Keep Its Cool Factor Under a New Corporate Owner?

The sale of skate culture fashion retailer Supreme was simply a matter of time. The die was cast when private equity firm Carlyle Group reportedly shelled out $500 million for a 50% stake in Supreme in the fall of 2017. So the sale falls right within the typical three- to five-year deal time frame for an outfit like Carlyle, particularly when it comes to the cyclical consumer space. The lack of surprise around VF Corp.'s Monday announcement that it was buying the burgeoning fashion brand for $2.1 billion reflects the recent alliances between Supreme and VF brands such as Vans and North Face. Those mashups surely figured into VF's due diligence process before the offering was made. Adding the brand to its apparel empire means VF was willing to pay roughly four times Supreme’s projected revenue for fiscal 2022, as well as a multiple of 15 times Ebitda (earnings before interest taxes, depreciation and amortization, which is a measure of cash flow). The deal equates to a significant pay day for Supreme founder James Jebbia as well as Carlyle. The deal also poses a common question: How does a large conglomerate like VF Corp. integrate Supreme into its stable of brands while maintaining its new purchase's "underground" and edgy streetwear cache? Supreme's reputation as a pioneer of modern streetwear stems in part from its nimble nature. That stance may be harder to support once it's no longer independent. The New York Post Partnered With Supreme for Today’s Cover Wrap, and It’s Selling Fast The answer can be found in Supreme's product drops. Its latest items include a mix of skateboards, a folding knife and a fishbowl. The retailer's advertising also makes bold moves—Supreme ads recently served as the cover wrap for an edition of the New York Post. Lastly, celebrities from rapper Travis Scott to Victoria Beckham and the Kardashian-Jenner clan are frequently seen sporting the brand's looks. VF's Fashion Fails The purchase of Supreme can be considered as part of VF's continuing metamorphosis. It's spun off or sold legacy businesses such as its denim division, which largely consisted of Lee and Wrangler. At the same time, VF has added brands such as Timberland to its roster. Supreme bolsters the parent's "retail-centric, hyper-digital business model," according to VF, with the potential to be a $1 billion brand globally via international and direct-to-consumer expansion. "While the terms 'lifestyle brands' and 'authenticity' get used and abused a lot in our industry, a quick scan of the VF portfolio confirms that each of their acquisitions has been able to retain the integrity of their original brand DNA and yet still comfortably fit within VF’s family of active-wear/accessory products," said Hayes Roth, a principal at HA Roth Consulting. "Supreme certainly meets this threshold as an 'activewear' VF brand and, by all past indications, VF will celebrate and support its authenticity while arguably professionalizing its management and marketing— as they’ve done so well for their other brands," he added. Supreme is a purely fashion brand, rather than one that's in part driven by utility, like the outdoor-oriented shoppers of North Face. That form instead of function aspect poses a wrinkle for VF. To stay successful, it must remain relevant from season to season. VF's success with its other fashion-focused acquisitions have been mixed. For example, in 2007, VF acquired 7 For All Mankind for $775 million. That brand, along with Splendid and Ella Moss, was was eventually jettisoned for a fraction of that deal's cost nine years later due to faltering sales. The biggest concern for a brand like Supreme is that the acquisition will kill its coolness factor, said David Lemley, founder and president of retail voodoo. However, he doesn't see that happening "anytime soon." "The entire leadership team is staying on, and Supreme has been playing with and collaborating with several of the VF brands for years," he said. Furthermore, VF has a history of acquiring with a light touch and letting the brand stay intact, Lemley added. Indeed, VF said that the management team, led by Supreme's Jebbia will continue at the helm of the brand. The difference under VF? Its leadership will be under pressure to produce growth given the hefty price tag plus the fact it is now part of a public company. The Challenges and Art of Brand Management Balancing the twin needs of profit and integrity may prove to be Supreme's biggest test, said Thomas Ordahl, global chief strategy officer at Landor & Fitch. "That's the fine art of brand management," he said. There are two different paths Supreme could follow, Ordahl said. Either it matures alongside its current customer base, or it stays relevant to the same age group by continuing to reinvent itself for a new generation. Vans, for example, continues to be popular with consumers around the age of 50 by tapping into 80s nostalgia that appeals to a younger crowd, he noted. "There is a lot of cultural relevance with Supreme that will need to be captured, nurtured and sustained within this acquisition," Ordahl said."VF Corp has done a great job to sustain Vans over the decades and we can expect to see that same attention to detail with Supreme." Another challenge for Supreme is not only the next shiny fashion brand or trend to come along, but also copycats, he said. Fending those off will factor into Supreme's continued success. The brand should take notes from its European luxury counterparts, which are able to grow their businesses not by overextending themselves and becoming mass, but by entering new categories such as eyewear, fragrance and accessories. Regardless, VF's purchase of the brand is a vote of confidence in its longevity. "Supreme’s cultural currency and cache will only contribute to VF accelerating growth across its portfolio and increasing its relevancy with Gen-Z consumers," Ordahl said.