VF Group'S $2.1 Billion Purchase Of Supreme "Dead On The Street" Or "Commercial Establishment"?

On November 9, VF, its parent company with the north face, vans and other brands, announced that it would acquire the famous high street fashion brand supreme for over $2.1 billion. Under the terms of the deal, supreme will pay an additional $300 million if it meets specific performance targets after it is acquired. After the deal, James jebbia, founder of supreme, and his team will remain in the brand. The deal will be completed before the end of VF group's fiscal year 2020. It is expected to contribute at least $500 million in revenue and 20 cents per share of adjusted earnings per share to VF group by 2022.

As soon as the news came out, the market expressed its concern for the tide brand circle in a more direct way: as of the closing of November 9, VF group's share price rose by 11%. At the same time, bigger questions are beginning to emerge: the reason why supreme is supreme has something to do with the bold and flexible business model and design. And once it is no longer "independent", can it maintain its "supreme" status in the tide card industry?

Balancing profits and maintaining temperament may be the biggest test for supreme in the future. -Visual China

Yesterday's myth of "brave retreat in torrent"

Since the beginning of its birth in 1994, supreme has taken the street culture of the minority as its selling point and attracted the attention of many skateboarders, hip-hop lovers and street artists. The logo printed with its symbolic red box and white words is simple, eye-catching and highly recognizable, which has become a very influential trend cultural symbol. All the clothes and accessories printed with the classic logo of supreme are expensive in the market, but even if they have money, they are hard to find. According to statistics, even in the resale market, due to the large number of speculators, the average price of supreme's second sale is more than 12 times of the original price.

The success of supreme is inseparable from its unique brand promotion and operation mode: on the one hand, it takes advantage of the cooperation with celebrities and big brands to play various co branding and cross-border; on the other hand, it creates scarcity and topic degree for products through hunger marketing and exclusive sales. Compared with ordinary stores that encourage consumers to buy more, supreme will temporarily announce the location of each new product launch and use the lottery system to "select" customers, and the products are sold out. Limited inventory and wise co branding make it different from other fashion brands which are always in overproduction. And its inherent rebellious gene and anti business attitude cater to the young people who pursue individualization, thus winning the popularity of millennials and generation Z consumers.

However, from the performance of the past two years, although supreme is still in the first echelon of the trend circle, the decline has gradually revealed. Although some die loyal fans blindly and crazily "look at the logo to pay", the mismatch between supreme's excessive premium and its rough workmanship has been impacting the bottom line of consumers. And how to constantly make the product fresh and high quality, in order to combat the aesthetic fatigue of the public, is the problem supreme can not avoid. In terms of the new products in autumn and winter 2020, this season's supreme products are either the same as those of the previous seasons, or "new wine in old bottles" is relying on the deconstruction of the past best-selling products. The worries of lack of new ideas and exhaustion of inspiration are looming. It seems to be a smart strategy to cash out when the brand is in a good condition rather than devalue the brand due to eating up the old capital.

Take over the olive branch of VF group

In fact, the rumor about supreme has been circulating for nearly four years.

As early as February 2017, Louis Vuitton, led by Kim Jones, launched the autumn / winter 2018 Fashion Show Series in cooperation with supreme, which is regarded as a milestone in the convergence of luxury fashion industry and fashion. It was reported that LVMH might buy supreme for $500 million. But in the end, there was no deal between them. On the one hand, supreme felt that the purchase price was low; on the other hand, it might be that the surprise of "luxury x Street dress" that LVMH and supreme could bring had been exhausted.

In the autumn of 2017, Carlyle Group, a private equity firm, valued supreme at $1.1 billion. At that time, Carlyle Investment Group purchased 50% of supreme for us $500 million and promoted cooperation between supreme and brands such as Levis and Louis Vuitton. Just three years later, VF group started supreme with an almost doubled valuation. This is the largest acquisition since VF Group acquired timberland for $2.3 billion in 2011. Many analysts in the market believe that the acquisition valuation is on the high side. But clearly, in addition to relying on the high profitability of the supreme brand, VF group is also looking for something more valuable.

Compared with supreme's high profile, VF group has always been very low-key. VF group is one of the largest clothing listed companies in the world. It has many famous brands, such as vans, the north face, timberland, timberland, JanSport, Kipling and Dickies. However, in the current fashion trend is constantly approaching the street culture, these relatively weak trend attributes and more functional brands are obviously a bit out of date and old school. Therefore, supreme is undoubtedly a key step for VF group to supplement its garment "tide flu" short board. "VF group may try to expand its customer base with supreme, while relying on the co branding cooperation between supreme and its brands to change VF's overall outdated image," said Rachel tashijian, a fashion commentator at GQ

In addition, the acquisition seems sudden, but in fact, many brands of VF group have long had a cooperative relationship with supreme for many years: vans, which is also originated from skateboarding culture, the north face, which has been closely cooperating with supreme since 2007, or timberland, which has been co branded for several times on hoodies and boots The similar tone and the tacit understanding of year-round cooperation have already established a deep understanding between the two sides and made the subsequent acquisition a natural one.

There are different expectations for the future

In the press release, Steve rendele, CEO of VF group, made no secret of his high expectations of supreme's accession. "The trend today is that consumers want to have meaningful interaction with real brands during the outbreak, which gives supreme a huge advantage," he said At the moment when the epidemic situation has changed many fashion retail and delivery modes, supreme still maintains a healthy customer flow: at present, the annual revenue of the brand is more than 500 million US dollars, and more than 60% of the sales are from online orders. The e-commerce channel and brand marketing strategy can guarantee the sales volume of supreme. After all, even in ordinary times, the only 11 physical stores and one e-commerce platform in the world are the only places where you can buy the official products of supreme. Steve Rendle said the acquisition of supreme would allow the group to further explore potential opportunities in the apparel and footwear industry and accelerate the transition to a digital business model. According to VF group's forecast, after supreme's increase in street clothing sector, the group's total market value is expected to break through the $50 billion mark from about $30 billion at present.

The market is divided on the prospect of supreme's acquisition. As Thomas ordahl, global Chief Strategic Officer of Landor & Fitch, a market consultancy, analyzes, the dual need to balance profits and maintain temperament may be the biggest test for supreme. VF group is a commercial company, facing the mass market. But in the future, in the face of heavier sales targets and performance pressure, in order to achieve the growth rate expected by investors, will supreme, rising from the niche market, choose "small" or "large"?

In the latest research report, UBS analysts believe that VF group's biggest challenge is to transform into a fashion company, which will not be able to maintain the scarce value of supreme, and the prospect of the combination of the two is not optimistic. Matt Powell, senior consultant of NPD group, also believes that the scarcity that makes supreme popular and the continuous growth of its performance are antagonistic, and it is difficult to achieve it at the same time.

VF group responded that in addition to providing globalization and supply chain, more international platform and digital technology, VF group will adopt a "non intervention" approach to manage supreme. "We have a strong strength and platform, but only when it's good for supreme and the brand is ready." Steve told the guardian: "we don't think there is an upper limit to the brand's promotion and we see a clear target of $1 billion in the future. Profits will certainly increase over time, but we don't want to go too fast. This cautious growth is effective for the growth of the brand, and we will not try to encourage the growth of the brand. " Thomas ordahl, global Chief Strategic Officer of Landor & Fitch, is also confident of the future of VF holding hands with supreme. He told Adweek: "VF group has done very well in maintaining the temperament of vans for decades, and we can expect to see the same happen to supreme."