Skate, scarcity, celebrity and high-fashion crossover — that’s Supreme’s formula for a billion-dollar valuation.
The buzzy skate brand known for its long lines, hard-to-get looks and many collaborations in July sold a 50 percent stake in its business to private equity giant Carlyle for $500 million, according to sources.
WWD broke the news of the deal on Friday. The transaction was kept unusually quiet, which sources attributed to Supreme’s founder James Jebbia’s concerns that taking such a big check from private equity would ultimately hurt the brand’s street cred, particularly in the U.K., where he was raised.
Now the deal spurs two distinct questions: First, what will Supreme and Jebbia do with all the cash and how will it expand? Second, what hipper-than-hip streetwear brand will next be in private equity’s sights — or, given the windfall Jebbia has received, what owner will be eager to get the same?
The New York-born but British-raised Jebbia founded Supreme in 1994, carefully nurturing the image of the skate brand and ultimately bringing it into the broader fashion consciousness. That effort culminated with the company’s pop-up collaboration with Louis Vuitton men’s wear this summer.
The business is said to be larger than its six stores and web site indicate and is highly profitable, especially since it makes do with largely a handful of silhouettes in a few fabrications and prints that grab the zeitgeist. Supreme has become renowned for its regular product “drops,” which draw huge lines and immediately sell out — meaning no markdowns.
In the consumer space, Carlyle is known as a cultivator of brands, a reputation that was bolstered when it invested in Dr. Dre and Jimmy Iovine’s Beats by Dre, which was sold to Apple in 2014 for $3 billion.
Carlyle declined comment on the deal, while Supreme did not return repeated requests for comment.
But the huge infusion of cash into Supreme could potentially alienate the brand’s hard-core supporters, who have thrived on the niche-iest of niches and hard-to-get products. Supreme’s approach mirrors a familiar formula in luxe that mixes celebrity enthusiasts, wait lists and exclusive products. (For instance, the company’s Poly Cover Composite Anorak, a collaboration with Stone Island priced at $648, was labeled as “sold out” on its web site, along with many other looks).
The transaction gave Supreme an enterprise value of $1.1 billion, including $1 billion in equity and $100 million in debt. That translates into just under 10-times the projected earnings before interest, taxes, depreciation and amortization of about $100 million, sources said.
While the company’s current level of profitability isn’t known, that projection is presumably a decent step up — and getting to that number will mean at least some of the new funds will have to be used to expand the business in a big way, which could potentially make it less exclusive (and, by definition, less cool). The brand already had faced backlash from some of its harder-core followers over the Vuitton tie-up.
But at least for now, there is plenty of room for growth.
Keith Tran, the co-owner of Black Market, a sneaker and streetwear store with locations in Texas and California, said of Supreme’s new investment and potential: “China is a huge player that they aren’t currently in. One of the biggest things I noticed is in Japan, they have six or seven stores, it does well, sells out every day, but if you go to Hong Kong, maybe a bigger market than Tokyo you have zero stores there, zero stores in Korea, Mainland China. They are huge marketplaces for the Supreme customer. If I would guess [the Carlyle investment is] going to help them expand quicker into the Asian markets.”
Last week, the brand opened its second New York store, in Brooklyn. That relieves some of the stress on its Manhattan location, which was plagued with long lines.
But how growth is managed now that a big-time investor has arrived will shape the brand’s future. And Supreme’s development will be closely watched by two groups: other investors hungry for the next big thing (and not wanting to miss out on a trend) and skate brands looking to cash in on their exclusivity before the fashion moment passes them by.
Behind Supreme are a host of other brands connecting street and high fashion, bringing a new kind of cool to the industry and sporting web sites that build urgency by featuring more looks that are sold out than are for sale.
With Supreme out of the picture (at least until Carlyle sells its stake or the brand goes for an initial public offering), contenders for the next investor are:
• Kith: The brand was started by Ronnie Fieg in 2011 with Sam Ben-Avraham, who owned Atrium, founded the Project trade show and now owns Liberty Fairs.
• Palace: Founded by Lev Tanju in 2009, the skate brand opened a New York store earlier this year and operates a shop in London, which is where the company is based.
• Noah: Brendon Babenzien, who was the former design director at Supreme, relaunched the brand in 2015 with a New York store. He has since set up a two-story shop in Tokyo.
• Know Wave: A more obscure collective started by Aaron Bondaroff, a Supreme alum, that’s recently started partnering with retailers and institutions – MoMa PS1 and Notre, a Chicago retailer – on collections tied to an event or art exhibit.
• Ripndip: A brand started by Ryan O’Connor in 2009 that’s leading in the Zumiez space.
• Anti Social Social Club: A hype brand founded by Neek Lurk in 2015. Lurk has collaborated with brands ranging from Dover Street Market to Vans.
Streetwear veterans predicted that brands linking with investors can successfully make the transition in the eyes of many of their consumers, although it might be a little rocky, especially at the start.
Black Market’s Tran believes the Carlyle investment won’t impact consumers’ perception of Supreme.
“Maybe 20 years ago selling out was a concept, but nowadays it’s the way that business is done and people understand that,” Tran said. “You can’t buy anything in the store. It’s mainly only done via resale, which is expensive. So if I was a consumer, I would think this deal is awesome if it means I have a better chance to buy the product at a regular price.”
Aaron Levant, the founder of Agenda trade show, agreed.
“What it means for the brand is one or two posts on a streetwear blog and a long thread of kids making negative comments for two seconds and then they are going to forget about it in a month,” said Levant.
He cited the Japanese streetwear brand A Bathing Ape, which recently made a big comeback after being purchased by the I.T Group in Hong Kong in 2011.
“As long as the brand continues to create great moments, which they will be able to do with more capital, and follow the same business model and distribution strategy, they will be fine,” Levant said.