What EssilorLuxottica gets out of its $1.5B acquisition of Supreme

Streetwear brand Supreme, founded in 1994, is known for its popular drop model and limited-run inventory that often ends up reselling for much higher prices on third-party marketplaces. In some ways, its business model is a significant departure from that of EssilorLuxottica, whose core product is a timeless staple: eyewear. The deal also marks EssilorLuxottica’s first major foray into apparel. Buying Supreme allows EssilorLuxottica to explore a new category while tapping into Supreme’s young customer base. It also allows EssilorLuxottica to establish itself as more of a purveyor of fashion and style, which could prove useful in getting shoppers to buy more of its eyewear.

According to the company, EssilorLuxottica “will work to preserve” Supreme’s brand identity, direct commercial approach and customer experience. 

“Supreme will have its own space within our house brand portfolio and complement our licensed portfolio as well,” Milleri continued in the press release. “They will be well-positioned to leverage our group’s expertise, capabilities, and operating platform.” Supreme founder James Jebbia will continue to be involved with the brand under the new ownership. The transaction is expected to close by the end 2024, subject to approval by regulators.

Stories had been swirling for months that VF was looking to offload Supreme, which it had acquired in 2020 for $2.1 billion. Women’s Wear Daily reported in May that VF had hired Goldman Sachs to help it find a buyer.

But the acquisition still came as a surprise in the industry, said Jessica Ramirez, senior research analyst at Jane Hali & Associates, given that EssilorLuxottica has long specialized in eyewear, making Supreme the first apparel brand in its portfolio. 

“The caution for me is that Luxottica doesn’t manage apparel, which is already a really difficult category,” Ramirez said, adding that it can be hard to create synergy between multiple categories under one umbrella. “Usually, we prefer to see an apparel company to be purchased by another apparel company.” On the other hand, with its vast expertise in manufacturing and distribution, Ramirez said this ownership “can act as a guinea pig for the industry” in how well EssilorLuxottica manages Supreme.  

The French-Italian group EssilorLuxottica was founded in October 2018 via the merger of the Italian Luxottica with the French Essilor. Milleri said during an April earnings presentation that EssilorLuxottica has 150 brands in categories ranging from eyewear to lens technology. At the same earnings presentation, Milleri cited “iconic brands” as one of three keys to EssilorLuxottica’s long-term growth. “Our housed brands together with our long-lasting licenses will support our growth in the years to come,” Milleri said, citing EssilorLuxottica’s desire to serve as an “ambassador of style and innovation to consumers everywhere.”

EssilorLuxottica’s brands include chains that are strictly focused on eyecare, like Pearle Vision, to more luxury brands like Oliver Peoples and Vogue Eyewear. One of its brands, Oakley, also sells apparel in addition to sunglasses. EssilorLuxottica also licenses prescription and non-prescription for many luxury brands, such as Chanel, Prada, Burberry and Versace.

Still, from the VF side of the deal, “it feels like a sale done out of desperation,” Ramirez said. In the years since VF first acquired Supreme, the streetwear brand hasn’t grown at the rate its parent company initially hoped for. For the fiscal year ending March 2023, Supreme reported revenue of $523.1 million, a decline of $38.4 million from the previous year and missing its target of $600 million. In May, VF also reported a fourth-quarter loss and lower-than-expected revenue. According to Wedbush analysts, Supreme accounted for 20% of VF’s total company EBIT last year.

Sunny Zheng, research analyst at Coresight Research, said, “VF has its own problems with declining revenue and uncertainty around North Face.” She added that the new ownership could be a better fit for Supreme’s lifestyle assortment. About 80% of EssilorLuxottica sales are luxury-focused, Zheng said, which can help Supreme be positioned alongside higher-end merchandise. 

“I would say this is a good acquisition, but there are also some uncertainties,” Zheng said. Apparel and eyewear are two different sectors, Zheng said. However, Luxottica can leverage the acquisition by facilitating and cross-promoting and collaborations between Supreme and its other brands to create more brand visibility globally. “Luxottica is a big group with a lot of resources,” said Zheng, which can help Supreme be positioned alongside higher-end and designer merchandise. For the first quarter of 2024, EssilorLuxottica’s revenue growth slowed down, increasing by 3% to 6.3 billion euros. As of this year, North America accounts for about 45% of the company’s overall revenue.

Ramirez added that with Supreme’s loyal audience, EssilorLuxottica has a chance to reach Gen Z and tap into a young and new customer base. The Supreme acquisition also comes at a time when the M&A market is in flux, she added. For instance, the FTC has moved to block Tapestry’s $8.5 billion proposed acquisition of Capri. That creates the potential for more unusual deals like the one between EssilorLuxottica and VF.

It may mean that more surprising acquisitions are on the horizon.

“I think [EssilorLuxottica] will continue to acquire more fashion brands because we’re seeing a lot of consolidation,” Zheng said. “Supreme can continue to bring profitability, but the question is whether portfolio synergy can work.”