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With a deal built as much around brand cachet as bottom line results, VF is taking a page from luxury rivals such as Capri Holdings, which has acquired Versace and Jimmy Choo in recent years, and LVMH, which continues to pursue a deal for jewellery icon Tiffany & Co. Along with Tapestry, which owns Coach and Kate Spade, the high-end labels have long pursued a model of joining forces under one house to increase their brand value and claim a greater market share in the process.Luxury acquisitions often have different goals than deals for entry-level brands, said Simeon Siegel, managing director and retail analyst at BMO Capital Markets. Rather than simply seeking to increase sales, high-end tie-ups are often built around trying to “sell more expensively”, he said, and the Supreme acquisition is “somewhere in between”.
“Supreme sits in a rarefied spot of remaining true to who they are, maintaining their scarcity value, and now they have the backing of a much larger company,” Siegel said. “All of a sudden they have the infrastructure.”
Investors like the strategy: VF’s stock soared after the deal was announced the most in a single day in 33 years.
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This isn’t the first time middle-tier American retailers have tried this strategy. VF itself has been successful onboarding brands in the past like with Timberland in 2011. PVH Corp, owner of Calvin Klein and Tommy Hilfiger, has had strength in China.
On the other hand, L Brands has unloaded several of its holdings – including Abercrombie & Fitch and The Limited – and one of its two remaining brands, Victoria’s Secret, is struggling.
One difference between the luxury houses and down-market collections of brands is that the high-end labels typically have more cash on their balance sheets, giving them more flexibility and protection in uneven markets, said Bloomberg Intelligence retail analyst Poonam Goyal.
Supreme walks a fine line in the apparel world, offering clothes at affordable prices while also maintaining exclusivity that brings shoppers back week by week. The New York-based streetwear brand, started in 1994 to cater to the skateboarding crowd, offers VF a different level of brand appeal than past acquisitions.
“If it’s the right fit and it makes sense, it’s the diversification they need and it gives them access to a whole new customer,” Santaniello said.
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