In Focus: Supreme and Uber
When the Carlyle Group dropped an estimated $500 million to acquire a piece of streetwear brand Supreme there was a big question that followed the investment. Could Wall Street and Hypebeast co-exist? Would the Carlyle Group's need to grow their investment as fast as possible disrupt what Supreme had cultivated over several long years? The answer was yes, the two could co-exist.
Last week VF Corp. (VFC), home to North Face, Timberland, and other fashion apparel brands purchased Supreme for $2 billion. In the time between Carlyle's investment in Supreme and the VF Corp.'s purchase of Supreme, the Supreme brand hasn't lost much of its cache with its audience. But now, a new owner of the brand brings new concerns. Hypebeast and VF Corp. investors now have to consider how VF Corp will handle this fragile brand.
To start 2020 VF Corp.'s stock price was trending down, even before COVID-19 became an issue in the United States. The company's quarterly earnings for the quarter ending December 2019 was greeted with mixed emotions by Wall Street. Although the company reported increases in gross margin, operating margin, and revenue for the quarter, it didn't quite meet Wall Street's expectations, and big investors started to move away from the stock. Add the coronavirus pandemic to a so-so quarterly report and what we got was VFC's stock dropping from $100 per share to $56 per share in a few short months.
Fashion is Fickle
I earlier described Supreme as a fragile brand, and that was done on purpose. When it comes to streetwear or urban wear I have seen brands come and go. My pre-smartphone photo albums are filled with me in shirts made by companies that are no longer in business or aren't what they were when the photo was taken. We all have a box of stuff that we purchased when it was "in style" that we wouldn't dare wear today. Can Supreme with the help of VF Corp elevate from the space of fickle fashion and become a standard like Louis Vuitton or Burberry, but for streetwear, so it doesn't end up in that box of stuff we wouldn't dare wear?
We have to keep in mind that Supreme is a baby compared to other well known fashion labels. Hermes was founded in 1837, Louis Vuitton was founded in 1854, Burberry was founded in 1856, Gucci was founded in 1921, and Supreme was founded in 1994. For this investment to work for VF Corp. and its investors, VF Corp. needs to help Supreme maintain and grow its standing in the universe of fashion and all things related?
The collaboration has been a huge deal for Supreme in transferring money from consumer to company, very few companies have done it better. Supreme has collaborated with different companies inside and outside of its industry. There are Supreme boxing gloves thanks to a collaboration between Supreme and boxing equipment company Everlast, Supreme and Fender gave us the Supreme guitar, Clarks, Nike, Bathing Ape, and Louis Vuitton have also collaborated with Supreme in the past.
If you aren't sure about the type of clout the Supreme brand holds, here are two examples. The Hanes-Supreme collaboration produced a 3-pack of Hanes t-shirts that retailed for $28 and hit resale prices upward of $40. A regular 3-pack of Hanes t-shirts goes for $9.99 on Amazon, the Supreme logo on a Hanes t-shirt drove the price up by 180%. A pair of six inch wheat colored Timberland boots retails for $198 on the Timberland website. The Supreme and Timberland collaboration resulted in the same six inch wheat colored boots but with the Supreme logo retailing for $248, with a resale value upward of $300 a pair. S-U-P-R-E-M-E has the ability to turn a regular item into a must-have item.
VF Corp. has said it plans to leave Supreme as is and let it operate as it has been, which Hypebeast all over the world were hoping for after the news of the acquisition was made public. If that plan were to change and VF Corp. were to limit the number of Supreme collaborations and collaborators, or favor VF Corp. brands over others, this could really hurt the Supreme brand and how its fans interact with it.
Now You Can Invest in Supreme
For any investor who ins't a Carlyle Group client but who has wanted to align their money with that red box with the white lettering, then this is your chance, but buyer beware. I've said before that I believe COVID-19 will have a major financial impact on the U.S. and the rest of the world for some time. As this pandemic rolls on, it will get harder to justify the purchase of a $200 sweatshirt with a Supreme logo if your employment isn't as secure as it once was.
With that said, I believe VF Corp. is a good parent to help Supreme navigate the pandemic and come out stronger on the other side. Supreme can use VF Corp's access to capital and public markets to continue its rapid growth, and VF Corp can use Supreme's name and momentum to help boost its stock price.
Uber Selling ATG
Last week we got news that Uber (UBER) is exploring a sale of it's self driving unit, Advanced Technologies Group. Wall Street took this news better than I had expected, the stock closed up 6% on the week. Maybe Wall Street sees what I see.
Since before it's initial public offering, Uber bulls have pointed to the day when Uber vehicles would go driverless, allowing the company to keep more of the revenue it brings in. With the advances that companies like Tesla (TSLA) and Waymo were making in autonomous vehicle development, the driverless taxi investment thesis seemed like a very plausible one, and one that could likely happen by 2030, but now what?