By  on October 17, 2017
James JebbiaSupreme Brooklyn store opening, New York, USA - 04 Oct 2017

Carlyle’s investment in Supreme not only gave the company a $1 billion valuation but also raised a series of questions: How did it score such a big valuation? What does that higher profile mean for the future of the business? And just when did the cooler-than-thou skate brand become so corporate?The first two questions remain unanswered. The private equity giant has not spoken about its $500 million investment and is said to have agreed to not talk about its 50 percent stake given concerns about what it would do to the brand’s street cred. And the business’ future remains to be seen, although the early indications are that plenty of people are still more than willing to snatch up the brand’s looks.As for the corporatization of Supreme, that’s been happening for some time.Founded by James Jebbia in 1994 as a downtown skate shop, Supreme goes under the corporate name of Chapter 4 Corp. and has evolved into a business that is much bigger and more profitable than its handful of stores would suggest. Jebbia infrequently gives interviews, and the company did not respond to a WWD query regarding this story, but bits and pieces of the Supreme business philosophy and approach have become part of the public record in various lawsuits, where the company sought to protect its trademark and argued that it had a valid license to make apparel featuring artwork used by the Dead Kennedys.In July, Supreme sued Dead Sea Premier Cosmetics Laboratories, arguing the company opened a store near its Los Angeles location that wrongly used its trademark, with “Supreme” showing up on Dead Sea’s nameplate, its products and its shopping bags. The suit, which Supreme dropped last month, laid out what makes the buzzy skate company tick.In its complaint, the company said: “Supreme is a fashion company created in 1994 in downtown Manhattan specializing in the sale of high-end fashion products and a wide range of other products displaying the Supreme mark. Over its long history, plaintiff has played an integral role in the broader youth culture, which has remained central to its growth and regeneration.”The suit also notes that Supreme has “adopted a deliberate business plan for its retail store expansion. Rather than opening a store in every mall in the U.S., which it could do based on consumer demand, plaintiff has carefully chosen just a few markets in the world in which to operate retail stores including opening a store in Los Angeles in 2004….Consumers visiting Los Angeles include the Supreme store as a point of interest and consumers in the Los Angeles area have been known to line up around the store on the day before the release of new Supreme products.”In addition to putting its name on everything from apparel and baseball bats to fire extinguishers and inflatable rafts, the company has worked with “groundbreaking designers, artists, photographers and musicians — all of whom have helped continue to define [Supreme’s] unique identity and attitude.” Examples include skateboard decks that feature artwork from Jeff Koons, Damien Hirst and Takashi Murakami.Supreme also cited a “substantial investment” in marketing and a reputation for “quality, style and authenticity.”The firm argued that it “has achieved a prominent position in the luxury goods industry, attributable to its successful Supreme stores and the high quality of and significant demand for products sold under its Supreme mark. Once limited to skaters, rappers and underground filmmakers, [the company] now enjoys a more extensive and diverse worldwide customer base. Consumers camp outside of plaintiff’s stores the night before the launch of a new collection. The strength of the Supreme brand is reflected in the exponential sales growth of clothing and other products bearing the Supreme mark. The Supreme brand has become one of the most coveted and profitable brands in the high-end fashion and accessories industry and the consuming public at large.”While lawsuits can be awash in hyperbole, the truth behind that statement was not clear to the broader world until the company’s July deal with Carlyle was revealed by WWD earlier this month.In a separate case, Supreme found itself fending off claims of trademark infringement from Winston Smith, whose image of a crucifix featuring dollar bills appeared on the cover of the Dead Kennedy’s 1981 album “In God We Trust” and later, along with other artwork, on Supreme styles.Supreme had sublicensed the image from the Easy Partners, which worked with the band’s management firm BlackRock Creative Management Co. The brand was essentially caught up in a legal battle over who had rights to the images. The case was settled this summer, but not before the legal back and forth made public a redacted version of Supreme’s license for the image and some research on how much money the brand made from using the images.The license Supreme signed is straightforward. The copy submitted to the court included none of the financial specifics, but did note that the brand would pay royalties equal to a portion of sales with an advance and a guarantee. It was signed by Jebbia and valid between February 2013 and July 2014.The case produced a deposition of expert witness Doug Bania, whose role was to review the financial information at Supreme and submit a report on what profits it gained from using the artwork.“I do conclude the most significant factors that led Supreme — Supreme's ability to sell the subject products and earn incremental profits are the Supreme brand and reputation, Supreme's drop sales process, and Supreme's choice of co-branding opportunities,” Bania said.Pressed on what he meant when he wrote in his report, “One of the most significant factors that led to Supreme's ability to sell the subject products and earn incremental profit is Supreme's choice of co-branding opportunities," Bania said, “That's more of an embedded workplace. The employees and the professionals that run the company and the deals they choose to be part of.”The plaintiff’s side sought to discredit Bania, noting he is not an economist or accountant, but has a bachelor’s degree in cinema and a master’s degree in film, television and new media.Still, he seems to have singled out an important element to Supreme’s success — its collaborations.Indeed, just before Carlyle bought in, the company had a collaboration with Louis Vuitton that is said to have drummed up 100 million euros in business and helped position Supreme for a deal.

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