Scale or Scarcity, Supreme Walks the Tightrope
The corporate life for Supreme?
Maybe, eventually — but not quite yet.
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It’s been nearly two years since the apparel giant VF Corp. bought the white-hot luxury streetwear company for $2.1 billion, parking Supreme alongside Vans, The North Face, Timberland, Dickies and a host of other brands.
Despite some initial worries from diehards, the brand has stuck to its knitting — it certainly doesn’t feel like accountants have taken over.
But the accountants have had their say, with higher interest rates and currency fluctuations forcing VF to take a $422 million charge on Supreme’s goodwill and trademark last month.
The charge is a sign of mixed-up economic times, the accounting value of the business, a reflection of the premium paid to get the brand in the first place and a reminder that VF has a lot riding on Supreme’s success (and at a time when its largest brand Vans is struggling to regain its footing).
Still, the pace of Supreme’s brick-and-mortar growth has remained glacial, adding only two stores during the pandemic, with a total of 14 globally. Its collaborations sell out in minutes. And buyers are still flocking to secondhand sellers at StockX and elsewhere to snatch up hard to get looks at handsome premiums.
The moment of truth for Supreme as the beloved, quirky, hard-to-find and altogether unique brand that took fashion by storm seems to lie in the future.
But perhaps the not-too-distant future.
VF, which logged revenues of $11.8 billion last year, is a company of scale with a portfolio of brands and deep supply chain expertise that is the subject to the big expectations of Wall Street investors.
Supreme is a brand built on scarcity.
It might only be a matter of time before those two realities collide — especially with Supreme embarking on a major expansion with plans to double its prepandemic store count, growing to 24 doors by 2027.
The consensus inside and outside the company is that the growth plan — while rapid by Supreme standards — is still measured, pushing the brand into new markets like China, where it just opened an outpost in Dover Street Market, instead of blowing up the business.
Steve Rendle, VF’s chairman, president and chief executive officer, noted to WWD that consumers in only 20 percent of the globe have access to Supreme either physically or online — through websites in over 40 countries. And that it is just a very small subset of those consumers who actually buy Supreme.
The idea is to expand access — to let Supreme be Supreme, just in new places.
“It’s the physical environment of Supreme that drives the engagement, that drives the awareness that then unlocks the potential of the digital platform,” Rendle said.
The brand operates as something of a pseudo autonomous nation within VF, with Timberland’s global brand president Susie Mulder acting as liaison between founder James Jebbia and the Supreme crew and Rendle’s leadership team.
Supreme is understood to still be very much in control of design decisions and personnel decisions, including the hiring this year of creative director Tremaine Emory. Meanwhile, VF is flexing its supply chain muscles on behalf of the brand (although last year’s temporary, but industry-wide shutdown of sourcing in Vietnam due to COVID-19 did not help matters).
Rendle, who earlier in his career was president of The North Face for seven years, understands brands and is confident that Supreme can keep its DNA.
“When we sit with James and his product merchandising, his store operations team, they are the core consumer and they live and breathe what goes on in that New York marketplace…in Los Angeles, Milan,” Rendle said. “The store employee is the consumer, they’re representing the brand to the consumer. That’s what makes this brand go.…What they spend the most time obsessing about is the employee, that employee represents what Supreme stands for.”
Mulder gave VF investors an overview of just how the Supreme business works at a meeting in September, noting the brand creates two seasonal collections each year made up of 90 percent new products with about 20 releases a season. Apparel makes up about 70 percent of the assortment, complemented by footwear, bags and accessories.
“Supreme is authentic,” Mulder said. “It’s a product-led company with an agile, trend-driven approach. The products are fresh each season, and they’re rarely repeated.”
The brand is also global in that it has only one product assortment.
“It’s identical in every market and it creates a shared experience across the worldwide community,” she said. “We also do collaborations, many flavors and structures. We do them with brands, media, artists. And it’s important that we do these things. But this isn’t the business model itself. It’s a tool that we use to enhance excitement and novelty.”
Historically, Supreme has spent very little to build the brand in a traditional sense.
“We see the world changing and we’re going to invest in the brand through exciting new content and community building so that we can continue to authentically connect with our consumers,” Mulder said.
What that looks like remains to be seen, but clearly Supreme is evolving — something that would likely have happened no matter who ultimately controlled the business.
Consultant Nora Kleinewillinghoefer, an associate partner in Kearney’s consumer practice, said, “VF is an organization that is very good at bringing in brands, controlling the back end and allowing the brand to maintain their distinctive individual identity, using the back-end support and funding to grow the business.”
And the company needs both the front and back ends of its business to be working right to reach its potential.
Kleinewillinghoefer stressed the importance of Supreme’s nimble approach with quick small product drops to keep its profile in the streetwear market, which is expected to grow just 1.5 to 2 percent annually over the next five years.
“Streetwear is very moment-driven,” she said. “You really have to be on the pulse of what’s going on in the market. There’s a lot of competition in that space and there’s constantly smaller challenger brands. As a leader in that space, it’s actually hard to stay leading.”
At this moment, Kleinewillinghoefer said Supreme can hit its sales mark and retain its essence.
“Right now, VF’s bigger concern is making Vans work,” she said. “The Supreme piece definitely needs to work, but it is set up to track well toward their goal — it is a much better story.”
Andrew Almasy, a data scientist at StockX, said monthly trades of Supreme goods have stayed consistent on the marketplace this year.
“Supreme was the top-traded apparel and accessories brand on StockX in 2020 and 2021, and it’s on track to rank as the top-traded apparel and accessories brand in 2022,” Almasy said. “While Supreme remains in the top spot for apparel and accessories, we’ve continued to see independent and smaller brands carve out space for themselves in the secondary market.”
So far this year, Supreme goods have commanded a 60 percent premium on StockX, on par with 2021 and down from the 67 percent premium seen in 2020.
Some sense the brand has softened lately, particularly compared with its go-go days before the pandemic, but part of that could be tied to supply troubles last year, which constrained the business. VF initially said the business would drive revenues of $600 million last year, but that came in under that given the supply chain disruptions.
“It almost got oversaturated and overexposed to a certain extent,” said Erin Schmidt, senior analyst at Coresight Research. “Scarcity is desirable. They’re trying to maintain that strategy, but under VF Corp., they’re trying also to really grow the brand and those two are definitely not compatible strategies.
“The question is can the core values of the brand and the DNA of the brand still exist while still growing the brand globally, and hopefully they can,” she said. “It seems so challenging to take on such an innovative brand. The culture was, not anti-society, but rebellion and do your own thing, that was so much part of what the brand stood for.”
Now Supreme — like it or not — is part of a big corporate machine.
“I don’t know if the customer sees that or feels it or knows it,” Schmidt said.
If the consumer does ever sense the presence of VF in the Supreme brand, that will answer the question of whether the brand can walk the scale/scarcity tightrope.
“Acquisitions are rarely seamless,” said Simeon Siegel, an analyst at BMO. “And acquisitions are rarely judged by their immediate results. The burden of proof to scale Supreme and maintain their air of exclusivity was always going to be on VF and that has certainly not changed.”
It is not in VF’s interest to simply hit the accelerator at Supreme.
“VF does not win if they get a few really good years out of juicing their acquisitions,” Siegel said. “They need this business to work. They’re in the business of creating long-term brand equity that can be enhanced by what the VF entity has to offer.”