How Supreme's Success Could Also Be Its Downfall

July 17, 2018

Supreme has been able to capitalize on "hype" in order to become an exclusivity brand. Will this artificial scarcity lead them on a path of continued growth or will any increased distribution lead to dilution of the value of the brand?

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Supreme releases two collections per year. Fans can see previews of each item in the collection after it’s shown on its website. And rather than release every item at once, the brand slowly release pieces in stores and online in what it calls “drops” every Thursday. Supreme shows fans what items will be available before each drop, which creates hype around the products. And once a product runs out it’s typically not re-stocked, so you only get one chance to buy most products.

The limited supply and high demand create affordable exclusivity, and increases value for the buyer. Combine this with the excitement that builds for each drop and you get the typical supply and demand model on steroids. It’s become known as “Hype branding.”

The hype around Supreme got so high, in fact, that it sparked a secondary market. Resellers buy as much as they can when a new season drops, then sell items at markups that can reach over 1200 times their retail value.

SOT: Trevor Noah: “The menswear designer of the year is… Supreme”

In 2018, Supreme won the CFDA’s menswear designer of the year award, pulling the brand further into the mainstream fashion world.

One year earlier the company accepted -- the private equity firm -- the Carlyle Group’s massive investment and opened a new store in Brooklyn with the aim of allowing more people the chance to buy Supreme.

The expected growth seems counter to everything Supreme has done to grow so far. Supreme was built on a less is more strategy. So if more people can access Supreme will it lose their competitive advantage?

SPENCER FUJIMOTO: I do see it getting, like, maybe a little watered down and a little oversaturated with like kind of their clientele, their customer base is seeming maybe not as core as it used to be. I mean, obviously, most of the people don't skate, they don't wear this shit anymore. -- James is a genius. He knows exactly what he's doing. So, whatever the plan is now, there's a plan. You know, it's not just out of the blue. They- they= they definitely have formulated and plot and planned this out.

Fashion experts expect an expansion into Asia. Graphic 06 Supreme has 6 stores in Japan, but none in China or Korea. It may be possible to be exclusive in a lot of places, but overall more stores means more stock. Which, for Supreme, means less hype.

Supreme is at interesting crossroads. Do you think they can expand and stay cool, or do you think they’re trapped by commodity theory?

FULL TRANSCRIPT

Presenter: People are obsessed with Supreme. But why?

Presenter: I mean, it's just a logo, right?

Presenter: The streetwear brand has a borderline called Following.

Presenter: The company only has 11 brick

Presenter: and mortar stores worldwide,

Presenter: but the brand is valued at $1 billion dollars.

Presenter: So, what's the secret to Supreme's success.

Presenter: The answer is scarcity,

Presenter: but not in the traditional sense.

Presenter: Instead of using scarcity to raise prices,

Presenter: it uses scarcity to increase hype, and it's worked.

Presenter: But it might have worked too well.

Presenter: Affordable exclusivity is what makes Supreme cool,

Presenter: but it's also what limits the company's growth.

Presenter: [MUSIC] Commodity theory deals

Presenter: with the psychological effects of scarcity.

Presenter: It states that scarcity increases

Presenter: the value of anything that can be possessed.

Presenter: Most companies use commodity theory traditionally and

Presenter: charge exorbitant prices for exclusive items.

Presenter: For example, Hermes Birkin bag is one

Presenter: of the most scarce items on the market.

Presenter: The opportunity to purchase one will cost you years on

Presenter: a waiting list and a retail price of $11,000.

Presenter: [MUSIC] Supreme however,

Presenter: uses commodity theory differently.

Presenter: Its products are scarce but affordable.

Presenter: The brand sacrifices profits and

Presenter: instead cashes in on coolness.

Presenter: Where an orthodox company collects monetary value,

Presenter: Supreme collects perceived value.

Presenter: An intangible status that's come to be known as hype.

Spencer Fujimoto: That formula, people are still

Spencer Fujimoto: trying to apply to their own companies.

Spencer Fujimoto: Supply and demand, if

Spencer Fujimoto: their supply is low

Spencer Fujimoto: and the demand is high, then the price is high.

Spencer Fujimoto: So, that also makes the hype high.

Presenter: So, how did supreme figure out

Presenter: how to manipulate commodity theory?

Presenter: To answer that question,

Presenter: we have to go all the way back to the beginning.

Presenter: [MUSIC]

Alex Corporan: You know, there's a nice aroma in the store

Alex Corporan: [LAUGHTER] at June time.

Alex Corporan: [LAUGHTER] But, yeah, it was fun.

Presenter: In 1994, James Jebbia opened

Presenter: a small skate shop on

Presenter: Lafayette Street in the east side of Manhattan.

Presenter: He hired young local skaters to work the store.

Alex Corporan: To earn this and working with Supreme is super fun.

Alex Corporan: And we kinda turned it into a clubhouse

Alex Corporan: 'cause that's where everyone hang out,

Alex Corporan: that's where we skated from,

Alex Corporan: that's where we came back from.

Alex Corporan: We were just like this crazy gang that no one understood.

Presenter: Supreme started by selling other skate brands,

Presenter: then they started to create their own products.

Presenter: First, with T-shirts where

Presenter: the infamous box logo was popularized.

Presenter: It's simple design and high production quality made it

Presenter: stand out from other state clothes of the time.

Presenter: The shirts naturally fell into an exclusivity model

Presenter: simply because the company couldn't make

Presenter: the shirts as fast as they were selling them.

Presenter: [MUSIC] Next, it expanded the products line

Presenter: to include sweatshirts,

Presenter: then skateboard decks, then pants,

Presenter: until eventually launching a full streetwear line.

Presenter: Throughout the early years,

Presenter: the store gained a following

Presenter: beyond just New York skaters.

Presenter: Streetwear collectors, artists and high school kids from

Presenter: Japan and Europe latched onto

Presenter: the brand's exclusive products.

Presenter: But what really sets supreme apart,

Presenter: was their collaboration with Nike in 2002.

Presenter: The shoe release combined

Presenter: the sneakerhead worlds with

Presenter: Supreme's growing coat following.

Alex Corporan: When SB launched,

Alex Corporan: they launched with the Dunk, Super Dunk.

MALE_1: In, in the streets the dank itself,

MALE_1: that's a, that's a good way of life for people.

MALE_1: So, like to find a different color

MALE_1: way that's never been out,

MALE_1: that's would just created

MALE_1: all the energy come to Supreme to be

MALE_1: carried at the time

MALE_1: most of the stock so the one you could get.

MALE_1: Whatever danks come out, that was special at Supreme.

FEMALE_1: Supreme continued to collaborate and grow

FEMALE_1: in the shadows all while keeping their products scarce.

FEMALE_1: Supreme releases two collections per year.

FEMALE_1: Fans can see previews of

FEMALE_1: each item in the collection after it's

FEMALE_1: shown on the website and

FEMALE_1: rather than release every item at once,

FEMALE_1: the brand slowly releases pieces in stores and

FEMALE_1: online in what it calls Drops every Thursday.

FEMALE_1: Supreme shows fans what items

FEMALE_1: will be available before each Drop,

FEMALE_1: which creates hype around

FEMALE_1: the products and once a product runs out,

FEMALE_1: it's typically not restocked.

FEMALE_1: So, you only get one chance to buy most products.

FEMALE_1: The limited supply and high demand create

FEMALE_1: affordable exclusivity and increase value for the buyer.

FEMALE_1: Combine this with the excitement

FEMALE_1: that builds for each Drop and you get

FEMALE_1: the typical supply and demand model on steroids.

FEMALE_1: It's become known as hype branding.

FEMALE_1: The hype around Supreme got so

FEMALE_1: high that it sparked a secondary market.

FEMALE_1: Resellers buy as much as

FEMALE_1: they can when a new season drops,

FEMALE_1: then sell items at markups that can reach over

FEMALE_1: 1,200 times their retail value.

Trevor Noah: The menswear designer of the year is Supreme.

FEMALE_1: In 2018, Supreme won the CFD menswear designer of

FEMALE_1: the year award pulling the brand

FEMALE_1: further into the mainstream fashion world.

FEMALE_1: One year earlier, the company

FEMALE_1: accepted the private equity firm,

FEMALE_1: The Carlyle group's massive

FEMALE_1: investment and opened a new store

FEMALE_1: in Brooklyn with the aim of allowing

FEMALE_1: more people the chance to buy Supreme.

FEMALE_1: The expected growth seems

FEMALE_1: counter to everything Supreme has done to grow so far.

FEMALE_1: Supreme was built on a less-is-more strategy.

FEMALE_1: So, if more people can access Supreme,

FEMALE_1: will it lose its competitive advantage?

MALE_2: It's getting really popular.

MALE_2: I, I do see it getting like,

MALE_2: maybe a little watered down and a little

MALE_2: oversaturated with the kinda their clientele.

MALE_2: I mean, James is a genius.

MALE_2: He knows exactly what he's doing.

MALE_2: So, whatever the plan is now, there's a plan.

FEMALE_1: Fashion experts expect an expansion into Asia.

FEMALE_1: Supreme has six stores in

FEMALE_1: Japan but none in China or South Korea.

FEMALE_1: It may be possible to be exclusive

FEMALE_1: in a lot of places but overall,

FEMALE_1: more stores means more stock,

FEMALE_1: which for Supreme means less hype.

FEMALE_1: Supreme is at an interesting crossroads.

FEMALE_1: Do you think they can expand and stay cool?

FEMALE_1: Or do you think they're trapped by commodity theory?

FEMALE_1: [MUSIC]