Smart Glasses Taking Over Skate Parks: Essilor Luxottica to Acquire Supreme from VF Corporation

Source: Vision Monday

Once upon a time, in a land far, far away, there was a time when middle school Daniel would get up early before school, camp in front of his laptop, and refresh the Supreme web page hundreds of times, praying to beat the bots to the new releases. If you're anything like me, back in 2017, my biggest dream was to become a “hypebeast”— my ideal outfit (if I wasn’t a broke middle schooler) would have been designer streetwear from head to toe, Supreme, Off-White, Bape, and maybe some Stüssy or Palace here and there. Those were the golden days of streetwear culture when the streets took the fashion world by storm. And if any of you need a reminder, there was a Supreme x Louis Vuitton suitcase that sold for $125,000 at auction in 2017. $125,000. For a suitcase.

On July 17, 2024, EssilorLuxottica—a global leader in the optical industry—announced a definitive agreement to acquire Supreme, the iconic streetwear brand, from VF Corporation for $1.5 billion in cash. The acquisition is expected to close by the end of 2024, subject to regulatory approvals and other customary closing conditions. The acquisition marks EssilorLuxottica’s first major foray outside of eyewear, expanding its product portfolio into streetwear and fashion apparel. This $1.5 billion deal is also the company’s biggest deal since it took a majority stake in Dutch optical retailer GrandVision for about $6 billion in 2021.

Company Overviews:

EssilorLuxottica

EssilorLuxottica, the world’s largest eyewear company, was formed in 2018 through the merger of two industry giants: Essilor and Luxottica. This merger brought together Essilor’s expertise in lens technology with Luxottica’s dominance in eyewear design, manufacturing, and retail, creating a vertically integrated business that controls the entire eyewear supply chain.

Essilor’s origins trace back to 1849 when it was founded in Paris as Société des Lunetiers (SL), initially specializing in spectacle frames. Over the years, it expanded its capabilities, rebranding as ESSEL in 1962 and eventually merging with SILOR in 1972 to form Essilor. The company quickly became known for its groundbreaking innovations, such as the Varilux progressive lenses and Crizal anti-reflective lenses, which set global standards for eyewear technology.

Luxottica, founded in 1961 by Leonardo Del Vecchio in Italy, quickly became a major force in the eyewear industry through its strategic acquisitions and partnerships. By acquiring iconic brands like Ray-Ban and developing partnerships with luxury names like Chanel, Prada, and Armani, Luxottica expanded its brand portfolio. In parallel, Luxottica built a robust retail network by acquiring chains such as LensCrafters and Sunglass Hut, establishing itself as a leader in both manufacturing and retail.

The merger between Essilor and Luxottica combined the strengths of both companies to create a vertically integrated giant with over 200,000 employees across 150 countries. EssilorLuxottica now operates 650 facilities and 18,000 stores worldwide, covering every step of the value creation process, from product development and manufacturing to retail sales. The company’s vertically integrated business model provides an environment that cultivates innovation and unique solutions. The company merges lens and frame development under one roof, ensuring that each frame is paired with the perfect lens from the very beginning. This integration is best demonstrated by the Ray-Ban Authentic product line, where frames and lenses are designed and manufactured together to offer a seamless, premium experience to consumers.

In Q2 2024, EssilorLuxottica posted strong financial results, with €6.65 billion in revenue, a 3.42% year-over-year increase. The company’s operating income rose to €985 million, reflecting increased efficiency and the success of new products like the Ray-Ban Meta smart glasses and Stellest lenses in China. With a free cash flow of €971 million in the first half of 2024, EssilorLuxottica continues to invest in strategic growth areas. Its unique ability to cover every aspect of the value chain, from research and development to distribution, ensures that it remains at the forefront of innovation and growth and continues its mission of helping people worldwide to "see more and be more."

Giant glasses statue at Luxottica headquarters in Milan. Source: The Economist

 VF Corp

Founded in 1899 as the Reading Glove and Mitten Manufacturing Company, VF Corporation has evolved into one of the world’s largest apparel, footwear, and accessories companies. With a diverse portfolio of iconic brands like Vans, The North Face, Timberland, and Dickies, VF focuses on outdoor, active, and workwear apparel.

Over its history, VF has grown through strategic acquisitions. In 1969, the company acquired the H.D. Lee Company, marking a major turning point as it rebranded to VF Corporation. The acquisition of Blue Bell in 1986, which included Wrangler and JanSport, further expanded VF’s market share in the apparel industry. Notable additions in the 2000s, including The North Face, Vans, and Eastpak, solidified VF's leadership in outdoor and activewear. Finally, VF’s latest purchase occurred in 2020, when they bought Supreme for $2.1 billion. Supreme’s long-standing collaborations with VF’s Vans, The North Face, and Timberland brands made it seem like a natural fit within the portfolio, although it may not seem so obvious today. This acquisition was aimed to accelerate VF’s transformation into a more consumer-centric, retail-focused, and digital-first company.

VF operates a brand management business model, which includes the development, marketing, and distribution of its products. Unlike the vertically integrated EssilorLuxottica, VF outsources much of its manufacturing to third-party partners but maintains control over design, quality standards, and distribution channels. VF’s products are sold through wholesale partnerships with retailers like Walmart, Macy’s, and Nordstrom, department stores, national chains, mass merchants, and through their own DTC retail stores. VF currently operates 1,265 owned retail stores globally, including full-price, outlet, and custom stores. The company also maintains strong e-commerce platforms to provide consumers with direct access to its brands online.

A recent component of VF’s strategy worth mentioning is its move toward circularity. VF is actively developing a circular business model, which includes initiatives such as product rental and resale. This approach aims to reduce environmental impact and provide consumers with more sustainable and accessible fashion options.

Despite the longstanding history of the company, VF Corporation has been facing challenges in recent years. In Q1 FY25, the company reported $1.9 billion in revenue, reflecting a 9% decline year-over-year. This downturn was primarily driven by the mixed performance across VF’s core brands. For instance, The North Face saw a 3% decrease in revenue, while Vans, one of VF’s most iconic brands, faced a 21% drop. VF’s gross margin was 52.0%, down 80 basis points, influenced by currency headwinds and an unfavorable product mix. Additionally, VF’s operating margin was -12.6%, with an adjusted operating margin of -4.0%. VF anticipates generating $600 million in free cash flow for FY25, excluding proceeds from non-core asset sales. These financial moves are part of a larger effort to streamline operations and refocus on its core brands in the outdoor, activewear, and workwear categories.

Source: TechCrunch

Supreme

Founded in 1994 by James Jebbia in New York City, Supreme has become one of the most iconic and influential streetwear brands in the world. Originally starting as a small skate shop on Lafayette Street, Supreme has grown into a cultural phenomenon, beloved for its unique blend of skate culture, art, and fashion. From its minimalistic store design to its infamous red box logo—said to be inspired by artist Barbara Kruger—Supreme has become synonymous with exclusivity and streetwear authenticity.

Supreme's success is rooted in its ability to create hype through scarcity. The brand's strategy of weekly product drops on Thursdays, combined with limited quantities, has led to a massive resale market, where items often sell for several times their original retail price. This approach, now copied by brands like Nike and Adidas, has made Supreme's products some of the most coveted in the fashion world. For example, the Red Box Logo Tee, originally priced at $30, can sell for over $900 on platforms like StockX or Goat, and collaborations, such as the Supreme x Nike Blazer, saw prices rise from $150 retail to $800 in resale. The brand is also known for its gadgets, ranging from practical items like water bottles and knives to more extravagant releases like dirt bikes and billiard tables, catering to the diverse tastes of its fanbase.

Source: Hypebeast

In 2020, Supreme was acquired by VF Corporation for $2.1 billion, making it a wholly-owned subsidiary of the apparel giant. This acquisition built on a long-standing relationship Supreme had with VF, as it regularly collaborated with VF brands like The North Face, Timberland, and Vans. Despite the acquisition, Supreme has maintained its exclusivity-focused business model and continues to operate independently, keeping its limited drops and strong cultural influence intact.

Today, Supreme operates 14 stores globally, with locations in New York, Los Angeles, Paris, London, and Tokyo, among others. Supreme's expansion into Japan in the late 1990s is a testament to the brand’s early international vision, and most recently, back in March of this year, Supreme made its move into China with the opening of a flagship store in Shanghai. Nevertheless, despite the brand’s global success, Supreme remains committed to its roots in skate culture. The brand’s ethos has always been about staying true to its original vision, focusing on creating high-quality products with a connection to the subcultures that defined its early years.

“We can just do what we’ve always done, which is try and be open, try and be very aware of what’s going on, and try to make the best things possible for today’s generation while keeping it true to ourselves.”

— James Jebbia, Founder of Supreme

Industry Overview:

Although EssilorLuxottica is most active in the eyewear industry, since this acquisition is all about their way of breaking into the apparel market, it seemed more fitting for the industry overview to be about the global apparel market rather than the eyewear market.

The global apparel market was valued at USD 1.71 trillion in 2023 and is expected to grow at a CAGR of 4.1% from 2024 to 2030. This growth is driven primarily by high consumer spending on apparel, with the average American spending $1,945 annually on clothing in 2022, reflecting an 11% increase from the previous year. In addition, the rising disposable income in emerging economies such as China, India, and Brazil is contributing significantly to the market expansion. As these countries experience rapid urbanization and economic growth, a growing middle class with greater purchasing power is fueling demand for apparel and accessories, with consumers increasingly seeking to upgrade their wardrobes and follow fashion trends.

Source: Grand View Research

Source: Grand View Research

There are several key trends shaping the global apparel market, such as the increasing demand for sustainable and eco-friendly products. Consumers today are more conscious of the environmental and social impacts of the clothing industry, leading to a surge in demand for products made from organic cotton, recycled fabrics, and other sustainable materials. Many are also calling for brands to adopt transparent supply chains, minimize waste, and ensure fair labor practices. As sustainability becomes a priority for consumers, apparel companies that embrace these values are likely to gain an edge in the competitive market.

The rise of Direct-to-Consumer (D2C) brands is another major trend reshaping the industry. By bypassing traditional intermediaries such as wholesalers and retailers, D2C brands can sell directly to consumers, offering competitive pricing and personalized customer experiences. As e-commerce continues to expand, these brands are thriving, with many leveraging digital platforms to attract loyal customers. The growing influence of social media is also transforming the apparel industry, as platforms like Instagram, TikTok, and Facebook enable influencers and celebrities to showcase fashion trends and inspire global audiences. This direct engagement with consumers has made it easier for brands to build strong connections and quickly respond to changing fashion preferences.

In terms of market segments, mass apparel led the market in 2023, accounting for 68.2% of total revenue. Mass-produced fashion remains popular due to its affordability and accessibility, with fast fashion brands continuously introducing new designs to meet consumer demand. However, it is the luxury apparel segment that is projected to grow at the fastest rate, with a CAGR of 5.5% from 2024 to 2030. This growth is fueled by the rising population of high-net-worth individuals and increased consumer engagement through digital marketing and social media.

In terms of distribution channels, offline stores remained the dominant force, representing 79.3% of the market in 2023. Nevertheless, online channels are expected to see faster growth, driven by the convenience of e-commerce, competitive pricing, and the ability to access global brands.

Deal Rationale:

EssilorLuxottica’s Perspective

EssilorLuxottica’s acquisition of Supreme for $1.5 billion reflects a strategic move to diversify its business and expand beyond its traditional eyewear market into the broader fashion and lifestyle sector. Supreme, an iconic streetwear brand with a strong global following, offers EssilorLuxottica the opportunity to tap into youth culture and appeal to Gen Z and Millennial consumers. The brand’s highly successful business model, driven by limited product drops and exclusive collaborations, aligns with the growing consumer demand for exclusivity and personalization in fashion.

As Francesco Milleri, Chairman and Chief Executive Officer, and Paul du Saillant, Deputy Chief Executive Officer at EssilorLuxottica, put it:

“We see an incredible opportunity in bringing an iconic brand like Supreme® into our Company. It perfectly aligns with our innovation and development journey, offering us a direct connection to new audiences, languages, and creativity. With its unique brand identity, fully direct commercial approach, and customer experience – a model we will work to preserve – Supreme® will have its own space within our house brand portfolio and complement our licensed portfolio as well. They will be well-positioned to leverage our Group’s expertise, capabilities, and operating platform.”

By acquiring Supreme, EssilorLuxottica strengthens its presence in the direct-to-consumer (D2C) space, which is becoming increasingly important in today’s retail landscape. Supreme’s established online and in-store channels, particularly its D2C model, provide EssilorLuxottica with a new avenue for reaching customers directly, complementing its existing retail footprint with brands like Ray-Ban and Oakley. Supreme’s minimal reliance on third-party retailers allows for greater control over branding, pricing, and customer relationships, offering EssilorLuxottica valuable insights into running an exclusive, consumer-driven business.

Furthermore, the acquisition aligns with EssilorLuxottica’s broader strategy of blending fashion and innovation. Supreme’s collaborations with luxury brands like Louis Vuitton and The North Face have demonstrated the brand’s ability to bridge streetwear and high fashion, providing EssilorLuxottica with opportunities for cross-brand synergies within its existing portfolio. Potential future collaborations between Supreme and EssilorLuxottica’s eyewear brands could help elevate both businesses, bringing together fashion, technology, and street culture.

In addition, Supreme’s global presence, particularly in key markets like Japan, Europe, and the U.S., offers significant international growth opportunities for EssilorLuxottica. The brand's loyal customer base and strong market position in regions that EssilorLuxottica already operates in allow for easy integration and expansion.

VFC’s Perspective:

For VF Corporation, the sale of Supreme represents a necessary financial move driven by the need to improve liquidity and refocus on core brands. In Q1 FY25, VF reported a 9% decline in revenue, bringing in $1.9 billion, with core brands like Vans and The North Face underperforming. Vans, in particular, saw a significant 21% drop in revenue, reflecting ongoing struggles. Meanwhile, VF's net debt stood at $5.3 billion, underscoring the need for financial relief. By selling Supreme, VF aims to reallocate resources toward key brands such as Vans, The North Face, and Timberland, which are more aligned with the company’s long-term objectives in outdoor and activewear.

Additionally, Supreme’s own underperformance contributed to the decision. In 2023, Supreme generated $523.1 million in revenue, missing its $600 million target, which led to impairments on VF’s balance sheet. The sale not only provides VF with immediate liquidity but also allows the company to focus on revitalizing its core segments and addressing its financial strain more effectively. This underperformance, coupled with the fact that Supreme's highly exclusive, streetwear-focused business model may not have been an ideal fit within VF’s larger portfolio of more traditional retail brands, led to the decision to sell.

Moreover, the timing of the sale provides VF with the opportunity to reposition itself in a market that is rapidly changing. The post-pandemic retail environment has seen shifts toward direct-to-consumer models, e-commerce growth, and a surge in demand for sustainable fashion. VF's decision to sell Supreme enables it to better align its portfolio with these trends, leveraging its strengths in brands that are highly integrated into the outdoor and active lifestyle sectors, where it has historically thrived. The funds from the sale will allow VF to reduce its debt, invest in digital and sustainability initiatives, and support the continued development of brands that are central to its core business strategy​.

Source: Goldman Sachs

Deal Structure:

The acquisition of Supreme by EssilorLuxottica from VF Corporation was structured as an all-cash deal valued at $1.5 billion. This transaction includes customary adjustments for working capital, cash, and indebtedness as part of the final purchase price. Upon completion of the deal, Supreme will become a wholly owned subsidiary of EssilorLuxottica, continuing to operate under its current business model, which includes limited product drops and exclusive collaborations.

As part of the agreement, Supreme’s founder, James Jebbia, and the existing management team will remain with the company to ensure continuity and maintain Supreme's brand identity and operational model. The brand is expected to continue its direct-to-consumer (D2C) approach, focusing on maintaining its exclusivity while potentially exploring new cross-brand collaborations within EssilorLuxottica’s portfolio, such as eyewear partnerships with brands like Ray-Ban and Oakley.

This deal represents a strategic exit for VF Corporation, which acquired Supreme for $2.1 billion in 2020 but saw the brand underperform relative to expectations. VF will use the proceeds from the sale to strengthen its balance sheet and reinvest in its core brands, such as Vans, The North Face, and Timberland, which are more aligned with its long-term objectives. The sale provides much-needed liquidity to help the company refocus and reduce its debt, which stood at $5.3 billion as of Q1 FY25.

Advisors for the deal include J.P. Morgan and Goldman Sachs as financial advisors to EssilorLuxottica and VF Corporation, respectively. Legal counsel for EssilorLuxottica is provided by Latham & Watkins and Davis Polk & Wardwell for VF​.

Deal Discussion:

EssilorLuxottica’s acquisition of Supreme represents a strategic shift for the eyewear giant as it seeks to diversify beyond its traditional markets and embrace a broader lifestyle-driven approach. The move signals EssilorLuxottica's intention to tap into youth culture, leveraging Supreme’s strong brand equity and influence in streetwear to connect with a younger, fashion-conscious audience. This aligns with broader trends in retail, where consumers are increasingly seeking exclusive, limited-edition products and unique brand experiences, and EssilorLuxottica clearly sees an opportunity to bring this streetwear icon into its portfolio.

One of the central discussions around this acquisition is how EssilorLuxottica will handle Supreme’s delicate balance of exclusivity and mass appeal. Supreme’s success has been built on scarcity, with highly anticipated product drops and collaborations that keep demand high. The challenge for EssilorLuxottica will be to expand the brand’s global reach without diluting its core appeal—over-commercialization could risk alienating the very audience that has made Supreme so successful. However, EssilorLuxottica has experience with managing luxury and high-demand brands, suggesting it may strike the right balance between growth and maintaining Supreme’s somewhat edgy, underground image.

For VF Corporation, the sale appears to be a clear response to internal financial pressures and the need to focus on its core brands. VF’s broader portfolio, which includes heritage brands in the outdoor and activewear sectors, suggests that Supreme, while valuable, wasn’t an ideal fit long-term. This decision gives VF the ability to refocus and invest in areas that align more closely with its core competencies, particularly at a time when its core brands are also in need of revitalization. The sale of Supreme thus allows VF to take a step back from a brand that may not have fully integrated into its overarching strategy while providing a boost in financial flexibility.

On a broader level, this deal speaks to the blurring of lines between fashion, lifestyle, and functionality. Supreme’s entry into a company primarily known for eyewear opens up interesting possibilities for cross-brand collaborations, where Supreme’s fashion-forward, exclusive approach could intersect with EssilorLuxottica’s expertise in wearable technology, particularly in smart eyewear. The acquisition also highlights the growing importance of direct-to-consumer models in the retail industry, which is central to Supreme’s business strategy and likely one of the key assets EssilorLuxottica will look to build on.

The trend of social commerce is another important aspect to consider. Social media platforms like Instagram, TikTok, and Facebook have become central to how fashion brands engage with consumers. Supreme, with its strong presence on social platforms and its ability to generate buzz through influencer marketing and organic hype, fits well into this new landscape. Social media has been key to Supreme's success in maintaining relevance and driving sales, and EssilorLuxottica can capitalize on this by further expanding the brand’s social media-driven marketing strategies, especially to a younger, digitally-native audience.

While the acquisition of Supreme may seem unusual for EssilorLuxottica at first glance, it demonstrates the company’s willingness to embrace cultural shifts and broaden its brand appeal. As the lines between different lifestyle segments continue to blur, this deal could signal the beginning of a broader trend where large conglomerates look to streetwear and niche fashion brands to diversify their portfolios. For both EssilorLuxottica and VF Corporation, the success of this deal will depend on their ability to execute their respective strategies effectively without compromising the core strengths of the brands involved.

Bear or Bull?

The acquisition of Supreme by EssilorLuxottica is a bold move that has sparked debate. In fact, after the announcement of this deal, VF Corp's stock increased as much as 14%, while EssilorLuxottica's stock decreased as much as 5%. After writing all about this deal and the histories of the parties involved, am I long or short on this acquisition?

The Bull Case

From a bullish perspective, the acquisition of Supreme provides EssilorLuxottica with a unique opportunity to diversify its brand portfolio and break into the lucrative streetwear market. Supreme has built an almost unparalleled level of brand loyalty, particularly among younger consumers who crave exclusivity and authenticity. Supreme’s well-established direct-to-consumer model aligns with current market trends, giving EssilorLuxottica a pathway to expand its reach into the digital-first, youth-driven fashion sector.

Furthermore, Supreme’s track record of high-profile collaborations with luxury brands, such as Louis Vuitton, positions it perfectly within EssilorLuxottica’s strategy of blending fashion and functionality. The potential for future collaborations between Supreme and EssilorLuxottica’s existing brands, like Ray-Ban or Oakley, opens new opportunities for cross-brand synergies. With EssilorLuxottica’s global reach and marketing power, Supreme could expand its influence in key markets such as Asia, where the brand already enjoys a significant presence.

EssilorLuxottica has the resources and infrastructure to help Supreme grow globally without diluting its core identity. The company’s expertise in managing high-demand, high-profile brands provides confidence that it can handle Supreme’s need for exclusivity while also scaling the business. The broader trend of social commerce also works in Supreme’s favor, with its existing ability to generate organic hype through social media and influencer-driven marketing.

The Bear Case

On the flip side, the bearish case raises valid concerns about whether EssilorLuxottica can successfully navigate the apparel industry, which is outside its core expertise. While the company has excelled in eyewear, managing an apparel brand like Supreme presents new challenges, particularly given the brand’s unique business model. Analysts have expressed concerns that EssilorLuxottica’s lack of experience in this space could lead to difficulties in managing the brand effectively. However, EssilorLuxottica’s extensive global distribution network and resources may help mitigate some of these risks.

Another major concern is maintaining Supreme’s exclusivity and authenticity. Supreme has thrived on its anti-establishment ethos, its limited product releases, and its position as a niche, underground brand. Integrating it into a corporate structure as large as EssilorLuxottica’s could risk diluting the brand’s core appeal. If EssilorLuxottica over-commercializes Supreme, there’s a risk of alienating its loyal customer base and damaging the brand’s long-term value. This issue is compounded by Supreme’s underperformance under VF Corporation, raising concerns about whether it can thrive under another large conglomerate.

Additionally, the apparel industry is subject to fast-moving trends, and there is always the risk that Supreme’s popularity could wane as consumer preferences shift. While streetwear has been dominant for years, fashion is inherently cyclical, and Supreme’s position could be challenged if new trends emerge. EssilorLuxottica will need to stay ahead of these shifts to ensure the brand remains relevant.

Final Verdict: Bull

Tough decision, but I’ll buy a piece of Supreme clothing to support my case.