When Supreme opened its Brooklyn store in early October, WWD asked Angelo Baque, the streetwear company’s former brand director who still oversees its art direction, if the business had changed since it collaborated with Louis Vuitton earlier in the year. His response? Everything was business as usual.
But the next day, WWD broke news that The Carlyle Group could be close to a deal to invest in the company. WWD later learned that the investment, which involved the private equity giant paying $500 million for a 50 percent stake in the business, had happened in July and the collaborative collection with Vuitton, which was unveiled at the brand’s men’s wear show in Paris in June, helped seal the deal.
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 company’s projected earnings before interest, taxes, depreciation and amortization of about $100 million, sources said.
Supreme declined to comment, but the deal has raised questions about the future of the cool kid brand — and streetwear in general. It immediately turned what was already fashion’s hottest sector into an even hotter one.
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 [South] 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.”
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, 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,” Levant said. “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.”
The investment is indicative of how much the streetwear category has moved from a niche interest to highly sought after sector that’s helping keep retail afloat. The second edition of ComplexCon, a festival and marketplace held in Long Beach, Calif., further illuminated how much the category has expanded and morphed. The event, which took place in November, generated $20 million to $25 million in product sales on the show floor.
“The category is becoming more dynamic,” said Steve Aoki at ComplexCon, who has his own streetwear line, Dim Mak, and has invested in Vision Streetwear. “There is room for everyone. There will always be your consistent anchor brands like Supreme, but people want to see new ideas and hear a message they can connect with.”
Streetwear in general has become less defined and more varied. There is streetwear that’s sold in luxury department stores including 424 by Guillermo Andrade, Off-White by Virgil Abloh and Amiri by Mike Amiri. There are more contemporary priced lines including Kith and Stampd. And there are brands such as Thrasher and Odd Future that are leading in the PacSun and Zumiez retail environments.
Despite where the brands sit or how they are priced, designers are leveraging and scaling their appeal by partnering with larger companies. Jerry Lorenzo of Fear of God has a successful FoG line with PacSun and Vans, while Abloh has worked with brands including Ikea, Nike and Jimmy Choo.
But beyond being the leading edge in the increasing casualization of apparel, the expansion of streetwear is revolutionizing the way brands design, market and sell their products. More than ever this past year, “The Drop” became one of retailing’s key trends. The concept of releasing small runs of limited-edition products at a give time, thus creating consumer and social media frenzy, is becoming a key strategy for brands from the luxury to the mass market — even Ralph Lauren embraced this distribution model with the rerelease of the Polo Stadium collection.
This growth has meant traditional retailers have had to play catch up and adopt the limited drop distribution schedule that streetwear brands have long used.
In October, Barneys New York partnered with Highsnobiety on Thedrop@barneys, a two-day event with designer appearances, panel discussions and exclusive releases from brands including Gucci, Alpha Industries, Alexander Wang, A-Cold Wall, 424, Ambush and Visitor on Earth. Daniella Vitale, president and chief executive officer of Barneys, called the event magical and said it brought 10,000 people into the store, which is double what the retailer usually gets on a Saturday. There are plans to re-create the event.
Maxfield started its pop-up series last year and has worked with brands including Off-White, Vetements, Fear of God and Amiri on temporary shops located across the street from the Los Angeles boutique in a 2,500-square-foot space. Brands are tasked with creating an immersive store along with exclusive product that’s released over the course of the store’s lifespan. For example, Lorenzo re-created a church for his holiday pop-up at the store. Maxfield reveals the pop-ups a week before they launch and grants its VIP shoppers access the night before it opens to the public. Then it serves customers in line on a first-come, first-served basis and limits each person to one to two pieces per stockkeeping unit. These pieces are only available in stores.
This activity has even trickled down to the resale market, which was previously dominated by sneakers, but over the past few years has included more and more apparel. Secondhand is less of a dirty word for consumers who are searching for rare, sometimes affordably priced, product to wear. This is best evidenced by the success of Grailed, the secondhand resale site; Round Two, the secondhand streetwear retailer which opened its New York store, and StockX, the sneaker reselling app that launched a streetwear vertical.
Yet as streetwear brands move from niche to broader distribution, the question of where it goes from here will be one of the key issues in 2018. At WWD’s CEO Summit in October, Lorenzo offered his opinion about critics calling the category’s success a fad.
“I think a lot of that comes from resistance of people not wanting to believe what’s really happening before their eyes, but the power has kind of shifted, you can see it in retail and the kids who are making the decisions on what to buy, some of those same kids are making the clothing also,” he said. “I believe that’s the direction. I believe American street culture is the culture that validates everything. If people believe it’s a fad then that’s cool.”