Vans Owner Takes a Page From Luxury Houses With Supreme Purchase

(Bloomberg) -- From LVMH to Capri to Tapestry, makers of luxury apparel are known for pulling together complementary brands under a single banner. Now, VF Corp. is testing whether that strategy can work at the lower end of the market.

With its $2.1 billion acquisition of streetwear pioneer Supreme, VF is adding another hot name to a stable of brands that already includes the North Face, Vans and Timberland.

“Everyone needs an edge right now,” said Gabriella Santaniello, founder of retail consulting firm A Line Partners. “I think a lot of these brands are just becoming old and staid.”

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 Ltd., which has acquired Versace and Jimmy Choo in recent years, and LVMH, now pursuing a deal for jewelry icon Tiffany & Co. Along with Tapestry Inc., 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 more market share in the process.

Luxury acquisitions often have different goals than deals for entry-level brands, said Simeon Siegel, 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.”

‘Rarefied Spot’

“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 the most intraday in 33 years after the deal was announced.

This isn’t the first time middle-tier American retailers have tried this strategy. VF itself has been successful on-boarding 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 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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