Can Supreme survive its acquisition by VF Corp?

Chatter among fashion followers went into overdrive yesterday when VF Corp.—owner of brands such as Vans, The North Face, Timberland, and Dickies—announced it would acquire streetwear pioneer Supreme for $2.1 billion.

For Supreme, the move could hardly seem more opposed to its ethos. Since its origin as a single New York shop selling to the local skate community, its success has been based on its independent and uncompromising attitude as much as keeping demand high and supply low by releasing weekly drops of new products in small quantities. It was already a surprise when founder James Jebbia sold half the business in 2017 to private-equity firm Carlyle Group. To now have a large, publicly traded conglomerate take over was even more of a shock.

It raises the question of whether Supreme can endure, or if the brand will lose the elements that made it desirable in the first place. Jebbia himself once told the New York Times Supreme “needs to be cool to survive.” The short answer is the brand probably can survive, depending how you define cool.

Niche versus mass cool

In reality, Supreme ditched its cult status long ago. By 2017—the year it partnered with Louis Vuitton on a high-profile collaboration—it was well-known far beyond the skate community. Sales had reached roughly $200 million, according to VF Corp (pdf), and were still growing fast. To skaters and fashion insiders, whatever subcultural appeal it had was already long gone.

But that’s only one ingredient that shapes a brand’s image. Last year a group of researchers led by Caleb Warren, an associate professor of marketing at the University of Arizona, published a study examining what determines whether shoppers perceive a brand as cool. They identified 10 traits, including subcultural appeal as well as factors such as originality, authenticity, rebelliousness, energy, and aesthetic appeal. One important quality underlying many of these traits was what they call autonomy, meaning the brand charts its own course regardless what others expect. They conducted their studies with different focus groups, including one made up of 148 members of Reddit’s streetwear community, in theory Supreme’s core audience.

“Part of the reason we did the study is to see how cool differs for the people who are in that subculture versus more of the mainstream,” Warren says. “They had totally different perceptions about what brands are cool. The brand I remember standing out the most was Supreme, which to people outside this subculture is a cool brand, but within them, they’re like, ‘Oh no, everybody wears Supreme.’ For them, it was a popular mass brand.”

In his research, Warren distinguishes between what he calls niche cool and mass cool. The former refers to what a particular subculture considers cool but the general population hasn’t adopted. The latter is what the masses think is cool. Typically a product, brand, or idea first becomes cool within a small group, which sees it in part as a way to stand out from the masses. But the mainstream may start to take notice, and as the thing gains widespread popularity, it transitions from niche cool to mass cool. When that happens, it loses its desirability in the eyes of the subculture, which moves on to the next thing, and the cycle repeats. It’s the normal trend curve seen in industries such as fashion.

This scenario might suggest Supreme is doomed, and some users on Reddit and Twitter theorized it is. “Supreme about to be in every mall beside the Orange Julius and Auntie Ann’s,” one Reddit user wrote. Analysts at investment firm UBS shared the concern in a research note to clients today, pointing to the risk that VF Corp. “could have trouble maintaining Supreme’s scarcity value.”

But that doesn’t have to be how the story plays out. While the study found mass cool brands such as Nike lose points in areas such as autonomy and rebelliousness, they can still be seen as cool and conferring status. They also tend to be more profitable, command a higher price premium, and control more market share. The point came with a warning by the study’s authors: “Mass cool brands, however, need to be careful not to lose the characteristics—desirability, autonomy, etc.—that made them cool in the first place, or they will become passé.”

Reuters/Mike Blake

VF Corp.’s plans for Supreme

At least in this framework, Supreme can remain cool, just a different kind of cool, as long as it doesn’t abandon what attracted fans in the first place. The company has a knack for making simple, classic clothes with design elements such as graphics referencing music, art, and other cultural touch points that allow them to stand out. It keeps prices affordable and release quantities limited, all with an eye on the skate community and a big dose of irreverence. Those qualities seem unlikely to go away. Jebbia is staying with company, for one thing, and VF Corp has said it’s not interested in changing much.

“This isn’t really about synergies or anything we’re going to do particularly different with the brand,” Scott Roe, CFO of VF Corp. said on a call yesterday to discuss the deal with investors and analysts. “We absolutely have strong capabilities and platforms that, together, we think could be beneficial to the brand. But only when it makes sense and only when they’re ready for it because, frankly, it’s operating.”

Even though Supreme is already a frequent collaborator with The North Face, Vans, and Timberland, VF Corp. isn’t planning to push more tie-ups either. “The market understands how VF works with our branded portfolio, and we do not dictate what our businesses do,” CEO Steve Rendle said on the investor call.

The main goals VF Corp. has laid out are more expansion overseas and in Supreme’s digital business, which already makes up 60% of its sales. It has just 12 stores, mostly in the US and Japan, as well as one in Paris and London. Markets such as China and Korea still offer a lot of opportunity for growth, for example. Rather than saturate US malls, which would certainly hurt the brand, Supreme and VF Corp. appear to have their sights set on areas where they can expand without much effect on the perceived exclusivity in established markets.

Even after Supreme shed its cult credentials, it has continued to grow. In 2021, VF Corp. projects it will do more than $500 million in sales, and expects the brand can easily reach more than $1 billion in annual sales. It’s playing in a lucrative streetwear market that VF Corp. estimates to be $50 billion globally. Maybe its biggest challenge, as the UBS analysts noted, is that it’s a fashion business, meaning it has to keep up its creativity year after year.

Supreme’s continued success isn’t certain. But VF Corp. believes it can sustain its cool even as it gets bigger, if it just lets Supreme do what it’s always done.