VF Corporation owner of apparel and lifestyle labels such as Vans, The North Face, and Timberland is set to acquire the global streetwear brand Supreme for $2.1 billion.
The deal will give Denver-based VF Corp deeper access to some new and attractive consumer segments while offering Supreme the corporate machinery and supply chains to drive faster global expansion.
Supreme’s apparel, accessories and footwear lines are highly sought after and they are expected to contribute at least $500 million of revenue to VF Corp which had annual sales of $10.5 billion in FY2020. The brand’s annual sales have more than doubled over the past four years according to VF Corp's chief financial officer Scott Roe, 45% of it derived from outside the U.S.
While there are ‘street-inspired’ aspects to some of VF’s brands such as Vans and Dickies, the company wanted a more authentic name in its portfolio. Supreme also has a direct-to-consumer (DTC) model, brand loyalty and global footprint that make it very attractive.
“VF is mainly anchored in the active and athleisure, outdoor, and work and work-inspired segments,” said VF Corp’s CEO Steve Rendle during an investor call. “However we estimate that the streewear market is a $50 billion global opportunity, driven by trends such as casualization, social influence and self-expression. Supreme sits at the epicenter as the original category leader.”
More bewitching than that for VF Corp is the brand’s use of non-conventional marketing, curated drops and a constrained supply philosophy which creates scarcity and novelty. Rendle says this combination “supports meaningful pricing power” leading to “best-in-class profitability”. Gross margins are over 60% and operating margins are 20%, similar to the Vans brand.
Rendle described the acquisition of Supreme as validation of the company’s strategy to evolve VF Corp’s brand portfolio in line with the market opportunities driving the apparel and footwear sector. At the same time the company can leverage its scale to sustain Supreme’s long-term growth and expand its global footprint. This will open up revenue growth of 8-10% over the coming five years believes Roe.
Rendle added: “The Supreme brand will further accelerate VF’s ‘hyper-digital’ business model transformation.” He expects the new business will also improve shareholder return and long-term value creation. A glimpse of that was in evidence today when VF Corp’s stock soared by 11% to close at $11.81, bringing it back to pre-pandemic levels.
Supreme has partnered with VF’s brands such as The North Face, Vans, and Timberland for a number of years so joining the stable will not be a culture shock, more a light-touch integration.
Supreme’s founder, James Jebbia, together with the core management will also remain with the company, which will stay headquartered in New York City. Jebbia commented: “This partnership will maintain our unique culture and independence, while allowing us to grow on the same path we’ve been on since 1994.”
The Carlyle Group CG +2.2% and Goode Partners, both current investors in privately-owned Supreme, are selling their stakes. The transaction is expected to be completed before the end of the year subject to regulatory approval.
Article courtesy of WWD here