What’s Next for Streetwear’s Biggest Brands

Supreme and Stone Island are going to have to sell a lot of logo T-shirts to justify their new billion-dollar valuations.

In November, Vans and North Face-owner VF Corp. acquired Supreme in a deal valuing the brand at $2.1 billion. Moncler bought Stone Island at a €1.15 billion ($1.4 billion) valuation earlier this month.

The pair of deals reaffirmed streetwear’s status as one of fashion’s most lucrative categories, leading to speculation about the potential for future sales of other independent streetwear brands. In a year defined by casual clothing and e-commerce sales, hoodies, sweatpants and logo-adorned T-shirts are particularly valuable assets.

“We see no upside limitation on the brand,” VF Corp. chief financial officer Scott Roe told investors in November, adding that the conglomerate wants to roughly double Supreme sales to $1 billion.

But scaling these brands won’t be easy. Supreme and Stone Island, with their private equity backers and global distribution networks, were hardly underground labels. And the fashion industry has a long history of struggling to strike a balance between being big and being cool. Creating a “union between two families,” as Moncler chief executive Remo Ruffini described the Stone Island acquisition to BoF earlier this month, isn’t easy.

“Every brand needs to assess the balance between exclusivity and distribution … once a brand is diluted it’s very difficult to recoup equity,” said Simeon Siegel, managing director of equity research at BMO Capital Markets. “The acquisition of Supreme will be a success if consumers never know it happened.”

A Balancing Act

Both Stone Island and Supreme trade on a large supply of cultural references within devoted youth subcultures, from Milan’s “paninari” youth movement in the early 1980s to New York’s downtown skateboarding scene.

Supreme started in 1994 from a lone store on Manhattan’s Lafayette Street, ballooning into a multi-million dollar business by 2017 through a tight distribution model and hyped collaborations under founder James Jebbia.

Stone Island, which was founded by designer Massimo Osti in 1982, quickly became associated with UK football’s hooligan culture. It’s a crowd that has helped the brand reach revenue of €240 million from November 2019 to October of this year with profitability roughly as high as 28 percent, despite heavy wholesale distribution.

How much can cool bend versus break?

Maintaining a cult appeal while undergoing rapid expansion through growing sales and distribution is a seemingly paradoxical task for many streetwear brands, and a risk for both brands as they scale. Gen-Z and Millennial consumers are a critical asset for both Moncler and VF Corp. in these acquisitions, and keeping their trust will be important.

Streetwear brands of the 1990s and early 2000s, from Zoo York and Rocawear to Ecko Unlimited, all faced challenges in maintaining cultural credibility with younger consumers after their respective sales.

VF Corp was emphatic about a hands-off approach to the company.

“We are not coming in to make changes,” said VF Corp. chief executive Steve Rendle in a call with investors announcing the move, adding that the mission would be to support and enable Supreme’s growth. How Rendle aims to double the brand’s sales without large changes remains to be seen.

Supreme has managed to maintain a cool, anti-establishment vibe even with the Carlyle Group, a private equity firm, as a major investor. Unlikely collaborations have fuelled the brand’s growth for years, but timing and limited inventory have been key.

For Stone Island, there may be less of a risk of losing cultural credibility. Moncler has grown into a hyped collaborator through the brand’s “Genius” programme. Ruffini said he’s looking to Stone Island as a “Moncler of 2010,” which he purchased in 2003 and transformed from a sleepy Alpine outerwear label to one of fashion’s biggest status symbols.

Both VF Corp and Moncler are “paying a hefty price for ‘cool,’” said William Susman, managing director of Threadstone Advisors. The question, he added, is “how much can cool bend versus break?”

Direct-to-Consumer Channels

VF Corp and Moncler know how to market and distribute global brands. They’ll be looking to open Supreme and Stone Island to new audiences.

For Moncler, that means taking tighter control of Stone Island’s distribution channels. The brand relies heavily on multi-brand retail, something Ruffini hopes to change in order to “capture the important growth potential” of the brand’s direct-to-consumer channel, according to a press release announcing the acquisition.

The acquisition of Supreme will be a success if consumers never know it happened.

Many brands struggle to make the transition from department stores to direct sales. As a streetwear brand, Stone Island may have an easier time of it; its target customers are used to waiting for drops on brands’ sites.

Supreme’s robust direct-to-consumer business and digital model — which accounts for 60 percent of its revenue — is one of its biggest assets to VF Corp., and something it seems unlikely to tinker with.

The brand also complements VF Corp.’s portfolio, with some of its most popular collaborations emerging from the corporation’s current roster of brands, including Timberland, North Face and Vans. The acquisition could create a halo effect for its entire portfolio, and inspire future collaborations.

“[VF Corp.] is increasingly looking to mix their business to more digital, younger, direct to consumer customers,” said Susman. “To be able to do that in a high-growth, high-margin opportunity ... it’s the right time.”

Eyes on China

Both brands also have opportunities to increase exposure in China, an increasingly important market given that Europe and the US have been slower to recover from the pandemic.

Supreme currently has 12 stores worldwide, with no locations in China.

“The Asian market in general still has plenty of room for growth, and I think VF can really help them take advantage of that,” said Josh Peskowitz, former VP of fashion direction and menswear at Moda Operandi.

Similarly, Moncler cited growth potential for Stone Island in both the US and Asian markets in its press release. Asia is Moncler’s top-performing market, accounting for 40 percent of the brand’s total revenues, signalling a plan for Stone Island’s future growth in the region.

“[Stone Island is] really still under-penetrated in the market too,” said Peskowitz. “They’ve still got room to grow.”

Why Supreme Sold to VF Corporation

How Stone Island Found Its Luxury/Streetwear Sweet Spot