When VF announced in November that it was buying Supreme for $2.1 billion, the disapproval came swiftly on social media from aficionados of the perennially cool streetwear company. “Idk if this is good for the supreme brand!! Supreme be kinda exclusive…” tweeted one fan. “Supreme Outlets coming soon,” mocked another, aghast that the beloved fashion company was selling out to “the man”—the man in this case being a Fortune 500 corporation that is one of the world’s biggest makers of decidedly mainstream clothing and footwear.
Supreme inspires the kind of fervor in customers that most brands can only fantasize about—while maintaining exclusivity and scarcity that helps convert devotion into profit. The company, which started life as a skateboarding shop in Lower Manhattan in 1994, still has only 12 stores, all in global gateway cities like New York, Tokyo, and Paris. Fans often camp outside those storefronts to snag Supreme’s latest “drop,” a weekly occurrence that falls on Thursdays. Supreme’s apparel also enjoys robust demand in the secondary market: A pair of 2012 Nike shoes designed in collaboration with Supreme recently sold for $2,450 on the online resale marketplace StockX, while a women’s leather jacket with a big Smurf motif was listed on Poshmark for $1,250. (Yet another Twitter critic fretted about the VF acquisition’s impact on that clout in secondhand circles, lamenting “the end of supreme resale culture.”)
Put aside, for now, the fact that Supreme’s fans may be overstating its maverick anti-corporate credentials: For the three years prior to the VF acquisition, it was 50% owned by the Carlyle Group, a pillar of the private equity establishment. It’s certainly true that VF is a big corporation, taking in revenue of $8.8 billion in pandemic-ravaged calendar year 2020—led by its “big three” mega-brands Vans, the North Face, and Timberland, all popular, some perhaps even cool, yet none approaching the exclusive downtown street cred cultivated by Supreme.
But if VF has one message for the Supreme faithful, it’s this: Don’t worry, you won’t even notice we’re here. VF chief financial officer Scott Roe calls Supreme a “beautiful, simple machine” and told Wall Street analysts in January, “We don’t want to mess it up.”
Indeed, VF’s so-low-key-it’s-invisible, behind-the-scenes corporate competence has been the key to its steady recent success. (You probably don’t know that VF originally stood for Vanity Fair, a lingerie brand the company once owned, and that’s just fine with VF.) The business now owns a 35-year track record as one of the most successful portfolio companies in retail. In addition to its three main brands, VF owns another 10, including Dickies, JanSport, Smartwool, and now, of course, Supreme. It has become a master at growing many brands into behemoths—using its operational and financial discipline to build them up without mucking with their marketing or their identity.
Too often in M&A, a portfolio company will make an acquisition with an eye toward where it can squeeze out costs or inefficiencies, rather than safeguarding what makes a brand click with customers. “We see this all the time where a company is buying a brand as more of a financial play—that’s really where the problems start,” says Joe Schmitt, a managing director focused on retail at consulting firm AlixPartners.
VF CEO Steve Rendle’s priorities lie elsewhere. He calls the Supreme deal— the largest in VF’s history, a hair bigger than its 2011 Timberland acquisition—a “spark” intended to goose his own successful but mature company. Over the last few years, VF has been remaking its portfolio to place a bigger bet on areas such as outdoor wear and streetwear. If anything, the new owner hopes the acquisition will remake the parent company, as much as the other way around: Learning from Supreme, VF hopes to speed up other brands’ product-rollout metabolism and modernize their marketing.
The key to not messing with a good thing, Rendle says, is letting Supreme’s founder, James Jebbia, run Supreme as he always has. (Jebbia declined to speak to Fortune for this story.) Ideally, with VF’s support, the brand will make its way from last year’s $500 million in sales to the $1 billion threshold Rendle sees in its not-too-distant future.
“They have a very focused management team that has been together for a very long time. They know their customer intimately,” Rendle tells Fortune. “The last thing we want to do is acquire a brand and then all of a sudden have to run it.”
VF’s modus operandi has never been taking on big turnaround projects. The company generally buys brands that are either modestly sized but ascendant, or established but slightly underperforming. When its game plan works, VF institutes a few operational tweaks, taps its enormous supply chain, and provides the acquisition with access to its much bigger pool of capital, setting the brand up to become a bigger moneymaker. Theoretically, Supreme—a company with a vibrant brand but a tiny operational footprint—is the perfect candidate for the VF treatment.
Supreme emerged in the early ’90s in Lower Manhattan, tapping into the then-underserved market of adult skaters. Understanding that its market might be small, Supreme started out making its signature T-shirts in limited runs, lest it be stuck with unsold merchandise. That practice persists to this day, even as the company has widened its assortment to include boards, hoodies, hats, and other items. Supreme never restocks any merchandise, and once it’s gone, it’s gone. The combination of frequent product drops and limited supply sustains Supreme’s “get it while you can” cachet, which leads many fans to treat its items like collectibles.
Since inception, Supreme has also shown a knack for putting itself at the center of culture, making T-shirts using designs by such big-name contemporary artists as Roy Lichtenstein and Richard Prince. It has collaborated with high-fashion brands like Comme des Garçons, but also built merchandise around mass-market heroes like Kermit the Frog. As Kermit’s Disney-licensed presence suggests, Supreme has also been open to teaming up with corporate titans. Coincidentally, its track record on that front includes past and present partnerships with VF brands Vans, Timberland, and the North Face.
Supreme’s merchandise is not inaccessibly expensive, at least when it’s new: For example, it’s currently selling a white Supreme-logo baseball hat for $54, jeans for $148, and Dr. Martens shoes for $178. But its reputation for quality, casual chic, and the cool that comes with scarcity have given it clout with tastemakers comparable to that of luxury brands; in particular, Supreme has become a favorite of music-industry megastars like Kanye West, Rihanna, and Justin Bieber.
For VF, the benefits of buying Supreme are tied to its own bigger strategic imperatives. For one, as apparel sales through department stores continue their steep decline, VF wants to get stronger in e-commerce and selling from its brands’ own stores. Supreme sells 60% of its wares directly to consumers via its own website, and the rest at its own small fleet of stores. It doesn’t sell through third-party retailers (what’s called “wholesale,” in the apparel business); you won’t see Supreme tees next to the Dockers at Macy’s anytime soon. VF, which got about 41% of its sales through wholesale channels pre-pandemic, has been aiming to sell a bigger chunk via its own physical and digital stores—the goal is 51% by 2024—and hopes to gain even more direct-selling acumen from its new brand.
VF execs also admire Supreme’s ability to do fast, limited runs of new products, which not only fuels fan devotion but also reduces the risk of having to sell leftover items at clearance or at outlets. (Some VF brands have a small presence in outlet malls; Rendle says Supreme will not be joining them there.)
Rendle has now been with VF for 22 years, including a long stint heading the North Face. He says that any VF acquisition target has to be a $1-billion-idea—with that $1 billion eventually coming either in annual sales for that brand, or in a benefit to other VF brands in the form of sales growth, efficiencies, and best practices that the whole company can adopt. That latter category could include advancement in materials: Vans, for example, now uses in some shoes a weatherproof rubber developed at the North Face.
That potential benefit to the VF portfolio can also encompass merchandising and marketing magic. “Supreme has that in spades. That’s exactly who they are,” says Rendle. That could enable the other VF brands to tap and learn from Supreme’s storytelling prowess and be just as adventurous in their product introductions. In an ideal—though perhaps not terribly realistic—world, VF would love to see, say, Timberland boots having the kind of hold on its customers that enabled Supreme in 2016 to roll out a batch of $30 red-clay bricks with the Supreme logo etched into them, a drop that sold out in 10 minutes.
To get a sense of how VF could steer Supreme, it’s instructive to look at how it has managed Vans—another streetwear upstart that is now a $4-billion-a-year global brand.
Vans began life in Anaheim in 1966, when Paul Van Doren opened a store that was instantly popular with the skateboarding and surfing crowd. Its checkered slip-on canvas shoes became part of pop culture, thanks to movies like 1982’s Fast Times at Ridgemont High. By the time VF bought it in 2004, annual sales at Vans had reached $350 million. But it was clear to VF’s CEO at the time, Mackey McDonald, that Vans could become something much bigger.
Steve Murray, the Vans veteran who spearheaded its integration into VF and led the brand for several years after that, recalls McDonald saying, “We like to buy people as well as the brand.” And VF largely kept Vans people in place. But the new parent also gave Vans resources that fueled a jump into apparel, as well as an international expansion—most notably in China, where VF has a long-established infrastructure of branded stores and relationships with landlords. “We probably would never be in China if we weren’t part of VF,” says Doug Palladini, Vans’ current global head. (China is a market Supreme has yet to tackle.)
All the while, McDonald, who stepped down in 2008, and his successors took a hands-off approach to the brand’s presentation and marketing, says Murray, who now heads the North Face. “VF had no desire to be involved in the brand’s front end,” Murray recalls.
Rendle maintains that management philosophy today. While he holds weekly meetings with the heads of VF’s “big three” businesses, he avoids micromanaging his stable of brands. Palladini says Rendle is anything but a helicopter CEO. “I’ve never once heard Steve say anything directive about the product,” he said. Rendle also largely steers clear of how the brands market themselves. Last June, Murray says, the North Face halted all advertising on Facebook, in protest of what the brand saw as Facebook’s failure to prevent the spread of misinformation stoking racial animus on its platform. Murray was able to make the move without Rendle’s permission. (The North Face resumed advertising in August, citing Facebook’s progress in addressing the issue.)
Still, VF has not been shy about putting in its own team when it feels an acquisition needs a shakeup. When it bought Timberland for about $2 billion a decade ago, sales at that brand were stagnating; the founding Swartz family left, and VF installed Patrik Frisk (now CEO of Under Armour) to lead it. The company also replaced the CEO of Dickies parent company Williamson-Dickie Mfg. Co. in 2019, two years after having bought the work-wear company for $820 million in a bid to get a piece of the work-clothes-as-lifestyle trend that Carhartt is also riding.
Supreme is hardly a shakeup candidate—and what’s more, in Supreme founder Jebbia, Rendle has a known quantity. Rendle was heading the North Face when it partnered with Supreme for the first time in 2007, teaming up to make Supreme cobranded parkas, among other items. Rendle recalled how VF’s New York team initially had to convince him that teaming up with Supreme made sense. But when Rendle saw Supreme’s store on Lafayette Street and met Jebbia, he got it. “He stays intently focused on everything to do with the brand and the product,” Rendle says.
Rendle suggests that even if he and VF wanted to walk all over Jebbia and his team, it would be very hard. “James is really clear about what he wants to do and what James does not want to do,” says the CEO. The press-shy Jebbia said in November that the VF deal “will maintain our unique culture and independence, while allowing us to grow.”
The comfortable coexistence of those leaders, of course, is key to the eventual success of the deal. “You can model the synergies all you want, but it’s only going to be possible because of people,” says Donna Hitscherich, a lecturer at Columbia Business School who directs its private equity program.
As a portfolio company, VF is constantly tweaking its roster to keep the lineup fresh. Way back in 2007, the company sold off its namesake Vanity Fair lingerie brand. Since Rendle became CEO four years ago, the tweaking has become a major overhaul. VF has been busier shedding brands than buying them, moving away from tired categories like denim sold at department stores and big-box discounters, and deeper into active wear, outdoor wear, and streetwear.
Since 2017, VF’s portfolio has fallen to 13 brands (including Supreme) from more than 30. It has sold off, among others, its Majestic business of licensed team sports wear and its Nautica and Kodiak apparel and footwear brands. It has also spun off Wrangler and Lee jeans into a publicly traded company called Kontoor. Thanks in part to those divestments, the company’s top-line revenue remains below its 2014 peak of $11.8 billion. But the overhaul has also remade VF as a more dynamic, profitable company, one more agile in e-commerce and better focused on young shoppers. After multiple decades as a portfolio company, VF knows how to cultivate brands while chasing the synergies M&A bankers tout but don’t always deliver. “That’s the benefit of being a serial acquirer—they’re like experienced surgeons,” Columbia’s Hitscherich says.
Still, pressure was building on Rendle to make a career-defining buy in the vein of the Timberland deal, something that would help transform VF into something more than a holding company of solid brands. And Wall Street seems to believe that, with Supreme, he’s pulled it off. Barclays has called the deal, which closed in December, “everything we could have hoped for as an addition” to VF’s roster. VF shares shot up when the deal was announced and remain 20% above where they were right before the announcement, slightly ahead of the S&P 500’s gains over the same time frame.
In his old business acquaintance James Jebbia, Rendle may have found the right partner for a reinvigoration. Supreme won’t move VF’s top-line needle all that much anytime soon. But it will infuse the 121-year-old company with new energy, Rendle says. “We’re becoming even more agile than we were four years ago,” he says, “because the world is moving very quickly now.”