A six-year-old T-shirt, white with a simple brand logo, still in its packaging, on the block for €2,500. Three branded baseball caps of roughly the same condition and vintage, €600. These and other tokens of “street style” appeared in a sale in Paris this year, at the auction house Artcurial. The sale was built around the New York skate brand Supreme, known for its cherry-red logo and its knack for transforming everyday objects, clothing or otherwise, into culturally charged fashion. The sale was a success: almost all the lots sold, doubling the presale estimates. Not only resellers are making money out of this cultural phenomenon though, Supreme itself, with just eleven shops worldwide, has been valued over $1 billion. But how did Supreme manage to become not only this insane cultural force but also one of the fastest growing companies of the fashion industry?
A very conspicuous portion of Supreme’s success is due to its drop culture. Supreme keeps the supply of some of its items below demand, adding lustre to the rest of the line and creating a thriving resale market. Never underestimate the ability of any strong brand to perpetuate itself. Coca-Cola has been charging premium prices for branded sugar water for 125 years. Because Supreme drops sell out immediately, clients have to direct themselves to secondary markets, and Supreme costly items become even more expensive in the resale market. Resellers have even found a name for this, “The Supremium”. The Supreme North Face jacket had a retail price of $300 , but it can resold for $1600, a 463 % price increase. This applies to every item sold by Supreme, even to a branded crowbar whose retail price was $32, while the resale $360. One of the biggest Supreme resale markets is a website called StockX. According to their CEO, resellers on StockX move about $3 million worth of Supreme merch every week, which implies over 150 million a year in resale business for one brand on just one site.
Before becoming this insane cultural force, Supreme started off as one skate shop in New York founded by James Jebbia in 1994. Jebbia understood that consumers’ willingness to pay higher prices for luxury products was not just intrinsic to the high fashion brands, but could be extended to streetwear as well, even though nobody at the time was targeting the market. To make the brand desirable by the hype culture, the logo was remixed with other artists, including Jackson Pollock, and popular brands as Coca Cola, Gucci, Burberry and Louis Vuitton. This process of lifting or appropriating other’s work had been a fixture of street culture since the early days. What Supreme managed to do is to level up hype through collaborations. The brand built by these combinations is so powerful that when it is slapped on to an ordinary thing, the effect is transformative. The perfect example of such effect is the Supreme branded bricks, sold for a retail price of $30 but with a resell price of $150. As it seems like Supreme’s whole business model is built on hype, the question becomes what is its real value? Is it sustainable and what is the long-term play for Supreme?
Scarcity principle was applied by NIKE with the famous “Jordan’s” already in the 90s. The desire to differentiate ourselves with things other people cannot have has always been a characteristic of human kind. There is even a term for it coined by Thorstein Veblen in 1899, “conspicuous consumption”. Conspicuous consumption is when a person shows off by buying things other people cannot afford, which leads to a phenomenon that economists call “Veblen goods”. Usually as the price for a good goes up, demand goes down, but for Veblen goods, as price goes up, demand also goes up. There are several examples of Veblen goods today: Patek Philipp watches, Gucci Marmont bags, Cristal.
But if Supreme is going to keep using scarcity to fuel hype, the biggest threat to its brand might have to do with a change of its strategy to one more interested in the growth of its profits. Carlyle group, the giant asset corporation managing $212 billion worth of assets and which is already investing in companies like Mcdonalds, has indeed acquired roughly 50% of the company for a price between $500- 600 million according to Wwd. This brings the valuation for Supreme to around a billion dollars. The investment by Carlyle was confirmed by the same Jebbia in a statement released to The Business Fashion : “We’re a growing brand, and to sustain that growth we’ve chosen to work with Carlyle, who has the operational expertise needed to keep us on the steady path we’ve been on since 1994.”
Now, it is well known that the underlying motivation of any private equity investment is the pursuit of achieving a positive and significant return, typically with an investment horizon between four and seven years. Carlyle involvement in the management will thus presumably urge for a higher and quicker growth, in order for the company to reach the intended valuation target. Nonetheless, such higher profits are difficult to be achieved without flooding the market with an increasing amount of Supreme’s products, which can cause the brand to collapse for loosing exclusivity. To have a proof of this just look at what happened with the “Triple White Yeezys” shoes. They were a limited run but then it came out in August of this year that Supreme was going to make another million pairs. The resale price tanked from more than $400 to less than $250. This should come as no surprise for a brand like Supreme which has built its name on conspicuous consumption. It may well be, then, that the goal for a higher valuation of a private equity company like Carlyle could severely damage this company success through an increasing supply. In conclusion, unless Carlyle can maintain this hype culture around Supreme making it at the same time grow fast enough from a financial point of view, it might be the only reseller that doesn’t make its money back on Supreme.
Daniel Sacco
A very conspicuous portion of Supreme’s success is due to its drop culture. Supreme keeps the supply of some of its items below demand, adding lustre to the rest of the line and creating a thriving resale market. Never underestimate the ability of any strong brand to perpetuate itself. Coca-Cola has been charging premium prices for branded sugar water for 125 years. Because Supreme drops sell out immediately, clients have to direct themselves to secondary markets, and Supreme costly items become even more expensive in the resale market. Resellers have even found a name for this, “The Supremium”. The Supreme North Face jacket had a retail price of $300 , but it can resold for $1600, a 463 % price increase. This applies to every item sold by Supreme, even to a branded crowbar whose retail price was $32, while the resale $360. One of the biggest Supreme resale markets is a website called StockX. According to their CEO, resellers on StockX move about $3 million worth of Supreme merch every week, which implies over 150 million a year in resale business for one brand on just one site.
Before becoming this insane cultural force, Supreme started off as one skate shop in New York founded by James Jebbia in 1994. Jebbia understood that consumers’ willingness to pay higher prices for luxury products was not just intrinsic to the high fashion brands, but could be extended to streetwear as well, even though nobody at the time was targeting the market. To make the brand desirable by the hype culture, the logo was remixed with other artists, including Jackson Pollock, and popular brands as Coca Cola, Gucci, Burberry and Louis Vuitton. This process of lifting or appropriating other’s work had been a fixture of street culture since the early days. What Supreme managed to do is to level up hype through collaborations. The brand built by these combinations is so powerful that when it is slapped on to an ordinary thing, the effect is transformative. The perfect example of such effect is the Supreme branded bricks, sold for a retail price of $30 but with a resell price of $150. As it seems like Supreme’s whole business model is built on hype, the question becomes what is its real value? Is it sustainable and what is the long-term play for Supreme?
Scarcity principle was applied by NIKE with the famous “Jordan’s” already in the 90s. The desire to differentiate ourselves with things other people cannot have has always been a characteristic of human kind. There is even a term for it coined by Thorstein Veblen in 1899, “conspicuous consumption”. Conspicuous consumption is when a person shows off by buying things other people cannot afford, which leads to a phenomenon that economists call “Veblen goods”. Usually as the price for a good goes up, demand goes down, but for Veblen goods, as price goes up, demand also goes up. There are several examples of Veblen goods today: Patek Philipp watches, Gucci Marmont bags, Cristal.
But if Supreme is going to keep using scarcity to fuel hype, the biggest threat to its brand might have to do with a change of its strategy to one more interested in the growth of its profits. Carlyle group, the giant asset corporation managing $212 billion worth of assets and which is already investing in companies like Mcdonalds, has indeed acquired roughly 50% of the company for a price between $500- 600 million according to Wwd. This brings the valuation for Supreme to around a billion dollars. The investment by Carlyle was confirmed by the same Jebbia in a statement released to The Business Fashion : “We’re a growing brand, and to sustain that growth we’ve chosen to work with Carlyle, who has the operational expertise needed to keep us on the steady path we’ve been on since 1994.”
Now, it is well known that the underlying motivation of any private equity investment is the pursuit of achieving a positive and significant return, typically with an investment horizon between four and seven years. Carlyle involvement in the management will thus presumably urge for a higher and quicker growth, in order for the company to reach the intended valuation target. Nonetheless, such higher profits are difficult to be achieved without flooding the market with an increasing amount of Supreme’s products, which can cause the brand to collapse for loosing exclusivity. To have a proof of this just look at what happened with the “Triple White Yeezys” shoes. They were a limited run but then it came out in August of this year that Supreme was going to make another million pairs. The resale price tanked from more than $400 to less than $250. This should come as no surprise for a brand like Supreme which has built its name on conspicuous consumption. It may well be, then, that the goal for a higher valuation of a private equity company like Carlyle could severely damage this company success through an increasing supply. In conclusion, unless Carlyle can maintain this hype culture around Supreme making it at the same time grow fast enough from a financial point of view, it might be the only reseller that doesn’t make its money back on Supreme.
Daniel Sacco