VF to buy Supreme for US$2.1b to boost apparel brands

[DENVER] VF Corp is buying Supreme, a streetwear fashion label, for US$2.1 billion in a cash deal that will add to its portfolio of apparel and footwear brands.

The transaction, expected to be completed by the year-end, marks VF's largest acquisition since it bought Timberland in 2011 for US$2.3 billion. The Denver-based company also owns Vans and the North Face brands.

The deal comes at a time when the apparel sector has been upended by the coronavirus pandemic as consumers move away from discretionary items in favour of groceries and other essential goods. Still, the Supreme brand remains a gem in the industry because of its cult following among younger millennials and Generation Z consumers.

"We've been on a journey the last four years to evolve our portfolio to really align with where we saw the market and more importantly the consumer going," VF's chief executive officer Steve Rendle said in an interview. "Supreme fits so well into our evolved portfolio." The company's buying Supreme from private equity firm Carlyle Group and investors including Goode Partners. An earlier report showed Carlyle paid US$500 million in 2017 for a roughly 50 per cent stake in the fashion brand, an investment that could double in value based on the latest transaction. Supreme declined to comment on the earlier deal.

VF said the Supreme brand will be modestly accretive to its revenue and adjusted earnings per share in the year ending March 2021. In the following fiscal year, Supreme is expected to contribute at least US$500 million of revenue and 20 cents of adjusted EPS.

VF's shares have fallen 30 per cent this year, compared with a 17 per centgain in the S&P Retail Select Industry Index.

Supreme will help expand VF's digital channels, which have been one of the company's growth engines during the pandemic. Mr Rendle noted Supreme's "agility" to connect with customers both in brick-and-mortar locations and through its social channels. The apparel is either sold through Supreme's stores or website, which generates more than 60 per cent of its revenue, according to Mr Rendle.

Once a skateboarding shop in New York, Supreme has become an international luxury symbol with its red-and-white box logo. It was founded by James Jebbia in 1994. Mr Jebbia and the brands' senior leadership team will stay with the company and continue to have creative control. It now has 12 shops from New York to Paris to Tokyo.

Supreme will benefit from VF's scale, international presence and supply chain. With Supreme's roots in the skateboard culture, it aligns with VF's other activity-based brands.

"This partnership will maintain our unique culture and independence, while allowing us to grow on the same path we've been on since 1994," Mr Jebbia said in a statement.

VF plans to learn more from Supreme's model, which relies on weekly release of new products and frequent collaborations, it said. Supreme has collaborated with retailers including Hanesbrands' Champion, Levi Strauss and even VF's three biggest brands, drumming up hype and broadening the appeal of the apparel involved. Supreme first teamed with Vans in 1996, and will continue to work with non-VF brands.

"This is also a consumer space we know quite a bit about," Scott Roe, VF's chief financial officer, said in an interview. "We've got about US$3 billion in sales already from that street-inspired intersection between active-athletic and streetwear total addressable market. We do know something about that space."

BLOOMBERG