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The Top 10 M&A Targets in Streetwear

Supreme’s partnership with private equity giant Carlyle is symbolic of streetwear’s high growth potential. BoF identifies the top acquisition targets in the space.
Image by Megan Doyle for BoF
By
  • Christopher Morency

LONDON, United Kingdom — Earlier this year, private equity giant Carlyle is said to have paid $500 million for a roughly 50-percent stake in streetwear label Supreme in a deal that valued the business at over $1 billion. The transaction underscored the power of the Supreme brand — often dubbed "the Chanel of streetwear" — and its innovative business model, rooted in cool but accessibly-priced product and tightly controlled releases, which "drop" on a weekly schedule that's far faster than the traditional fashion cycle.

But the transaction, which marked the first time a top-tier private equity firm had invested in streetwear, was also symbolic of a wider shift: the “glass ceiling” that once separated streetwear brands from fashion and luxury brands was cracking. Tellingly, the Carlyle investment followed Supreme’s blockbuster collaboration with luxury mega-brand Louis Vuitton, which served to highlight streetwear’s growing hybridisation with luxury fashion — and newfound mainstream appeal amongst consumers, especially men, who are fast moving away from formal wear.

The evidence is everywhere, from Balenciaga hoodies to Gucci graphic t-shirts to Bergdorf Goodman embracing Kith. Indeed, high-end streetwear helped boost global sales of luxury personal goods by 5 percent this year to an estimated €263 billion ($309 billion), according to a study by global consultancy Bain & Company. "Streetwear is a macro-trend in all geographies," said Federica Levato, a partner at Bain & Company, ahead of the study's release. "We think it is more about how people live their lives and how people like to dress vis-a-vis 10 or 15 years ago, when workwear was more formal."

“In a way, it’s a new luxury consumer,” says Jeff Carvalho, managing director and partner at influential streetwear site Highsnobiety. “The fact is: the streetwear consumer has become way more mainstream than it was in the past and these small brands that were seen as being really niche, today have become bigger businesses.”

Some have adopted the business model pioneered by Supreme, with its limited release products and weekly “drops.” Others have attracted feverish followings among fans who derive a sense of belonging, even tribal affiliation, from their purchases.

Many are also masters of collaboration. "If you can become one of the hot brands that everybody wants to collaborate with, all of a sudden you have the opportunity to sell a lot more product. For example, if you have a different hoodie every single season from a different collaboration, you expand your scope of where streetwear touches and reach the audiences from all of those other collaborators," explained Josh Luber, co-founder and chief executive of StockX, a "stock market of things" that specialises in the buying and selling of streetwear and sneakers.

All of this makes the hottest streetwear brands highly attractive acquisition targets. And if the streetwear sector has new momentum, many streetwear labels are also increasingly open to investment from strategic partners, transcending countercultural roots that once made them wary of "selling out."

"Streetwear used to be a thing where becoming big and making money wasn't a part of the vision and in some ways looked down upon," explains Carvalho. "But the new generation of streetwear brands like Kith, A-Cold-Wall and others don't have that cloud of concern and want to make thriving businesses… There's no reason anymore for them to remain small and I think that's quite a shift in perception." Just last month, skate and streetwear label HUF sold a 90 percent stake in its company for $63 million to TSI Holdings, a Japanese investment firm that also has investments in brands like Stüssy, Undefeated and Margaret Howell.

So, which streetwear brands have the highest potential, making them top targets for acquisition? BoF conducted its own internal research and analysis, and spoke with a number of industry experts, to identify the top 10 M&A targets in streetwear.

Palace
Founded in 2009

Best poised to follow in Supreme's footsteps is Palace — the London-based skate label founded by Lev Tanju — given its similar business model to the American streetwear brand, which revolves around weekly "drops" that encourage consumers to constantly re-engage with the brand. The appeal of its 1990s British working class-inspired line — comprised of polyester tracksuits, logoed windbreakers and football shirts — has transcended the skating community to reach pre-teen streetwear enthusiasts as well as their dads.

After having been distributed by Supreme, in April 2015, Palace opened its first monobrand store in London’s Soho and has expanded into the US market with the opening of a New York boutique in May 2017. Aside from launching four seasonal collections a year, Palace has found growth by collaborating with a roster of brands and artists including Reebok, Umbro and Adidas. With just two own stores, limited wholesale partners and a customer who is highly loyal to the brand, Palace’s opportunity for growth is huge.

Off-White
Founded in 2013

Since January alone Off-White's founder and creative director Virgil Abloh has collaborated with brands including Nike, Jimmy Choo and Rimowa, as well as Ikea, the New York City Ballet and Snapchat. In addition, this year Off-White opened stores in New York, Toronto and Hong Kong, and has quickly expanded its womenswear business through categories like leather goods and footwear.

As a result of Abloh’s growing exposure — Abloh has a combined 3.4 million Instagram followers on his personal and company pages — Off-White has quickly been able to scale its business with sales having grown 100 percent between 2015 and 2016. Sales at influential global retailers have grown triple digits season-on-season. “Off-White has a great formula for continued success, because the brand covers multiple product categories at varied price points and has signature street-style worthy pieces,” Elizabeth Von Der Goltz, global buying director at Net-a-Porter, told BoF in September.

The label falls under the umbrella of Milan-based production and distribution company The New Guards Group, which also counts Marcelo Burlon County of Milan, Heron Preston, Palm Angels and Ben Taverniti Unravel Project in its portfolio.

Kith
Founded in 2011

In October, Kith founder Ronnie Fieg opened a 10,000-square foot, three-storey megastore in downtown Manhattan that sells the brand's own fashion label, which today encompasses menswear, womenswear and childrenswear, alongside brands like Adidas, Nike, Fear of God and Off-White. The Kith label has amassed a loyal fanbase with a drip feed of weekly capsule collections, which complement the label's seasonal drops.

For its Spring/Summer 2018 collection, shown during New York Fashion Week in September, the brand collaborated with 20 partners (ranging from Off-White and Moncler to Disney and Coca-Cola to rivals Nike and Adidas). This year, Kith expanded its long list of collaborators to Vogue and Spongebob Squarepants, and launched its second collection with Bergdorf Goodman. Meanwhile, the brand has expanded its retail locations across the US, and now has five Kith outposts employing over 200 staffers, including those at its headquarters.

Vetements
Founded in 2014

Ever since the label, helmed by head designer Demna Gvasalia (now also the creative director of Balenciaga), launched on the Parisian fashion scene in 2014, Vetements has created waves that have rippled throughout the industry. It has been credited for bringing a couture sensibility to luxury streetwear with its signature exaggerated fits, reworked denim and deconstructed floral dresses.

To drive business and sustain the buzz around the label, Vetements often collaborates with a multitude of partners and experiments with new retail formats like pop-up shops. As one of the first brands to rethink its approach to the "broken" fashion cycle, Vetements has a unique influence that transcends different demographics and geographies.

Fear of God
Founded in 2012

Soon after celebrities like Justin Bieber, Kanye West and Kendall Jenner started wearing Fear of God's grungy, hip hop-inspired designs, the Los Angeles-based brand made a meteoric rise into the fashion scene. With its upmarket price-points and luxury positioning, the label founded by Jerry Lorenzo is stocked at retailers ranging from Mr Porter to Union LA. This while keeping its "street cred" up among the streetwear community by expanding into footwear this year, as well as through partnerships with Vans, Mastermind Japan and Pacsun.

Noah
Founded in 2015

Following a successful tenure as Supreme’s design director, Brendon Babenzien revived his own label, Noah, in October 2015 after a 10-year hiatus. Rooted in practicality, the brand blends utilitarian streetwear with a more classic menswear aesthetic that targets an older generation who has aged out of brands like Supreme. Noah’s environmentally sustainable and ethical mind-set has worked in the business’ advantage — having struck a chord with the young, activist generation, who are increasingly aligning themselves with companies that hold the same values as they do. Last year, the brand donated portions of its profits to causes like the Black Lives Matter movement, Standing Rock Preservation and Ocean Against Plastic for Wildlife, resulting in a dedicated fanbase who fuel the brand’s strong direct-to-consumer business.

A-Cold-Wall
Founded in 2015

Starting his career as an assistant to Virgil Abloh, A-Cold-Wall's founder Samuel Ross has quickly grown his London-based streetwear brand that takes its style cues from the tribes of the British class system. Between 2016 and 2017 his self-funded label reached £1.3 million ($1.7 million) in revenue. A-Cold-Wall's recent collaborations with Nike and Fragment Design have also increased its exposure. As a result, its stockists, which include Barneys, Antonioli and Smets, have grown by over 110 percent between the Autumn/Winter 2017 and Spring/Summer 2018 seasons to 52.

Filling Pieces
Founded in 2009

Finding a sweet spot in the space between athletic shoes and luxury footwear, Filling Pieces became one of the first players in the $55 billion sneaker market to offer accessibly-priced, contemporary silhouettes. "We're able to provide quality footwear to a 15 or 16-year-old that has a little bit of money to spend on footwear, but also the higher-end clientele that doesn't really care about brand names and just wants a quality product," Filling Pieces founder Guillaume Philibert told BoF in January 2016. Hailing from Amsterdam, the brand has created value around its technical, minimalist aesthetic, growing its stockists to 500. With the help of a private investor, who came on board in 2013, the company has seen revenue grow by 130 percent CAGR over the last five years, reaching €20 million ($23.5 million) in revenue for full-year 2017.

Bianca Chandôn
Founded in 2014

Bianca Chandôn's loyal skate following has enabled the 1970s-inspired label to scale its list of globally influential retailers, which today include Dover Street Market, 10 Corso Como and Supreme boutiques around the world. The brand — and its sister label Call Me 917 — were founded by veteran Supreme skateboarder and model Alex Olson, who has been credited with authentically bringing skate culture into fashion after photographing a shoot and directing a skate video for American Vogue in 2014.

424
Founded in 2010

Concept store FourTwoFour on Fairfax started as a popular Los Angeles streetwear mecca stocking emerging brands like Stampd, Tourne de Transmission and Cottweiler. When the store’s co-founder Guillermo Andrade launched an in-house streetwear line, 424, in 2014, it swiftly became popular among its influencer clientele.

The brand, which has put the spotlight on issues like police brutality and pollution, has become a go-to brand for celebrities like Kendrick Lamar, Kylie Jenner and Tyga, and has collaborated with musicians like The Weeknd and Wiz Khalifa as well as retailers including Barneys New York and KM20. In 2017, the label expanded its wholesale business and is now available at Harvey Nichols, SSENSE and Lane Crawford.

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