the fall off
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This week, we took a brief pause from the podcast but I wrote a new memo about Supreme. The streetwear brand was just sold to eyewear company EssilorLuxottica for $1.5 billion, which is $600 million less than the company was sold for in 2020.
Supreme used to be the brand. In today’s memo, we break down what happened that led to this point. This is a story that starts
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Why Supreme’s Fate Was Inevitable
One night in November 2019, I left my co-working space in downtown San Francisco to head home. It’s usually an uneventful walk, but I stopped when I saw a long line wrapped around the block. It was after 6 pm and already dark outside, so I assumed people were in line for a popular restaurant or a concert.
Nope. They were in line for the latest drop at the brand-new Supreme store on Market Street.
I can’t say I was surprised. Supreme was huge and hype culture was everywhere. But looking back, that was the height of Supreme.
Since then, the acclaimed streetwear brand has navigated a pandemic, global supply chain issues, a sale by its parent company, life under a publicly traded company, and a slowdown in hype culture. The intense demand is gone, the sneakerheads have moved on, and the resale prices have plateaued. The days of Supreme OREO cookies selling for $91,000 are long gone.
In July 2024, VF Corp sold Supreme for $1.5 billion to the largest eyewear company in the world, EssilorLuxottica, which is now in talks to receive an investment from Meta. The Supreme sale price is a $600 million drop from the $2.1 billion that VF bought the company for from The Carlyle Group.
It’s time to break down how Supreme got here, but not the lazy way. “Corporate America ruined our beloved brand,” gives too much power to Big Business and overlooks key factors. The reality has more nuance than a clickbait title can handle.
The Carlyle Group's perfect timing
When Carlyle made its initial investment, plenty of questions and eyebrows were raised. Some saw it as a new chapter for streetwear. It wasn’t that long ago that a once-beloved streetwear brand like Mossimo got acquired by Target and lost its cache. Supreme had the chance to prove that a brand can take significant capital, grow sustainably, and maintain its edge.
Many others were concerned by the deal. Was private equity about to Toys ’R’ Us this brand into the ground and sell it for parts?
The reality is that Supreme doubled in value in the three years that Carlyle owned 50% of the company. Part of that growth is due to the expansion efforts, but a lot of that is due to the impeccable timing of market trends.
The 2010s were the best of times for streetwear culture. Social media, influencers, and digitally native brands rose to power and paved the way for sneakerheads and hypebeasts to come together. By the time Carlyle invested, events like ComplexCon were in full swing, Nike’s SNEAKERS app was popular, and resellers like StockX had emerged. The headwinds blew in Supreme’s direction.
By November 2020, when Carlyle sold to VF Corp, the world was in a different place. Brick-and-mortar retail took a hit during COVID quarantine lockdowns, but collectibles were booming. This was the era when NBA Top Shot was the next big thing and Spotify bought Clubhouse-for-sports app Locker Room for $50 million. It feels like ages ago.
But those global supply chain issues took a tough toll on a brand built on scarcity and limited drops. While mass retailers can rely on excess inventory, Supreme was often left scrambling for inventory for several weeks.
Here’s Tom Nikic, an analyst from Wedbush Securities, who shared his thoughts in a 2023 Complex interview about Supreme:
“All the supply chain headaches that went into 2022 hit Supreme really hard because as a brand that operates on the scarcity model, not having a lot of inventory at all, that means that if there were delays in product they literally have nothing to sell.” Carlyle sold high in a zero interest rate phenomenon and a changing of the guard moment in streetwear. It was great for the PE firm but left plenty of questions for Supreme’s next chapter.
The disconnect between mass market and hype
Streetwear’s popularity influenced the rest of the apparel world so much that it became hard to distinguish at times. It created the perception of alignment opportunities that may not be that strong to begin with.
For instance, VF Corp saw Supreme’s streetwear brand fitting in nicely to its ‘street-inspired’ brands. Here’s a slide from its 2020 pitch deck on the deal:
Dickies, Timberland, The North Face, and Vans have had similar journeys. They had multiple waves of being the “in” brand. They were omnipresent, got shouted out in rap songs, and were featured prominently in music videos. But for the past ten years, these brands have been in harvest mode.
Their brand recognition is high, but distinct brand value prop is commoditized. Their clothes can be found in any department store. Their outlets and factory stores are always packed for back-to-school shopping. Their clearance items are on the racks at TJ Maxx. These brands are the fabric of American consumerism.
An apparel company can only get to that level through expansion, which VF did with Supreme as well. It launched Supreme’s storefronts in Shanghai, Milan, Berlin, Seoul, and Chicago. Supreme hired creative director, Tremaine Emory, to take the brand further. Demand was high, consumer surplus was high. Rational economics validated the move.
But for hypebeast-driven brands, economics are irrational. It's the limited inventory that drives demand. When supply increased, the benefits of scarcity suffered. Plus, the increased capital expenditure needed for brick-and-mortar stores was a big bet on consumers returning to stores post-pandemic.
Plus, the entire VF corp portfolio struggled at the time. Here’s Nikic again in the Complex interview:
“I think there's a lot of skepticism from Wall Street investors about VF in general. I mean their stock is down almost 80 percent from pre-COVID highs. I think many people worry that they bought Supreme at the absolute peak of this streetwear/hyped apparel trend and also question how to grow and scale a brand where its core focus is restricting supply.” A lot of buzz was made about Supreme’s 7% drop in sales in 2023, but Vans had a 29% drop in Q4’23 on a year-over-year basis. VF Corp also brought on a new investor, Engaged Capital. With VF Corp’s debt increasing, the investment firm likely saw an opportunity to offload Supreme, a brand that was more valuable and carried less debt than others, and use the cash to pay off existing debt.
These are the public company pressures that Supreme didn’t face as a standalone company or under The Carlyle Group. That’s less of a “corporate America” challenge and more of a hypebeast challenge. From Bathing Ape to Zoo York, there are plenty of brands that tried to maintain their edge and expand but couldn’t keep it going. Not to mention, Emory’s departure from Supreme and his troubling claims about the unhealthy work environment likely made matters worse.
A different approach
Managing hype isn’t easy, but the best companies execute with a mix of patience and product segmentation. Patience is understanding the deep connections required to build, cultivate, and maintain a beloved brand. Product segmentation is monetizing the brand’s full power without diminishing its core product.
Nike and Adidas managed this by releasing their own accessible and affordable sneaker lines that were inspired by their popular lines. Jordan Brand releases may be expensive and limited, but Team Jordans were far more accessible and affordable. Adidas’ Tubular sneakers were targeted similarly for those who liked the Yeezy style but didn’t have Yeezy money.
The hypebeasts and sneakerheads got to keep their exclusives, and the Team Jordan and Tubular customers got to buy sneakers that fit in with the popular culture. It allowed these brands to meet the demand curve. What would Team Supreme apparel have looked like?
Companies like Payless ShoeSource make billions every year selling shoes that look enough like popular brands to look “in” but not enough like them to get sued. Who can forget the look-a-like Adidas Superstars with four stripes? Why not create your own version (with your actual logo!) instead of letting other companies capture the downmarket demand that your company creates?
The good thing for Supreme is that the journey is far over. The founder, James Jebbia, is still involved with the company. His remarks show encouragement for the brand to get back to its roots.
In the meantime, we’ll wait to see what comes from the inevitable Ray Ban - Supreme - Meta drop.
Chartmetric Stat of the Week - 50 Cent
We have an upcoming 50 Cent One of Ones episode, so here’s a teaser stat for you. On November 1, 2023, 50 Cent's "In Da Club" was certified Diamond by the RIAA. His hit single reached Diamond status in the middle of his The Final Lap Tour, which is fitting. A tour that generates buzz can often increase demand for an artist's entire catalog, especially the hits.
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