What EssilorLuxottica Gains from the $1.5 Billion Supreme Acquisition

EssilorLuxottica, owner of brands like Ray-Ban and SunglassHut, is buying the brand from VF Corporation, which itself paid $2.1 billion for Supreme in 2020. In a statement, EssilorLuxottica chairman and CEO Francesco Milleri said, “we see an incredible opportunity in bringing an iconic brand like Supreme to our company.” Milleri added that Supreme “fits perfectly into our innovation and growth journey, offering us a direct connection to new audiences, languages, and creativity.”

Streetwear brand Supreme, founded in 1994, is known for its popular drop model and limited editions that often end up being resold at much higher prices on outside markets. In some ways, its business model is a far cry from EssilorLuxottica, whose core product is a timeless staple: eyewear. The deal also marks EssilorLuxottica’s first major foray into apparel. The purchase of Supreme allows EssilorLuxottica to explore a new category while also tapping into Supreme’s young customer base. It also allows EssilorLuxottica to establish itself as a purveyor of fashion and style, which could prove useful in encouraging customers to purchase more of the brand’s 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 own-brand portfolio and will also complement our licensed portfolio,” Milleri continued in a press release. “They will be well-positioned to leverage our group’s expertise, capabilities and operating platform.” Supreme founder James Jebbia will remain involved with the brand under the new ownership. The transaction is expected to close by the end of 2024, subject to regulatory approval.

Rumors have swirled for months that VF was looking to sell Supreme, which it acquired in 2020 for $2.1 billion. In May, Women’s Wear Daily reported that VF had hired Goldman Sachs to help find a buyer.

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

“The warning for me is that Luxottica doesn’t manage apparel, which is already a really difficult category,” Ramirez said, adding that it’s hard to create synergy between multiple categories under one umbrella. “We usually prefer that an apparel company be acquired by another apparel company.” On the other hand, given its vast experience in manufacturing and distribution, Ramirez said the ownership “could be a guinea pig for the industry” in terms of how well EssilorLuxottica manages Supreme.

The French-Italian group EssilorLuxottica was founded in October 2018 through the merger of Italy’s Luxottica with France’s Essilor. Milleri said during an earnings presentation in April that EssilorLuxottica has 150 brands in categories ranging from eyewear to lens technology. During the same earnings presentation, Milleri cited “iconic brands” as one of three keys to EssilorLuxottica’s long-term growth. “Our own brands, along with our long-term 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 for consumers around the world.”

EssilorLuxottica’s brands range from chains that are strictly focused on eyewear, such as Pearle Vision, to more luxury brands such as Oliver Peoples and Vogue Eyewear. One of its brands, Oakley, also sells clothing in addition to sunglasses. EssilorLuxottica also licenses prescription and over-the-counter products for a number of luxury brands, including Chanel, Prada, Burberry, and Versace.

But from VF’s perspective, “it seems like the sale was done out of desperation,” Ramirez said. In the years since VF first acquired Supreme, the streetwear brand hasn’t grown at the pace its parent company had initially hoped for. For the fiscal year ending in March 2023, Supreme reported revenue of $523.1 million, down $38.4 million from the prior year and missing its $600 million goal. In May, VF also reported a fourth-quarter loss and lower-than-expected revenue. Supreme accounted for 20% of VF’s total operating profit before interest and tax (EBIT) last year, according to Wedbush analysts.

Sunny Zheng, a research analyst at Coresight Research, said: “VF has its own issues with declining revenue and uncertainty around North Face.” She added that the new owner could be a better fit for Supreme’s lifestyle brand. About 80% of EssilorLuxottica’s sales are focused on luxury, Zheng said, which could help Supreme position itself alongside higher-end goods.

“I would say it’s a good acquisition, but there are some uncertainties,” Zheng said. Apparel and eyewear are two different sectors, Zheng said. But Luxottica could leverage the acquisition by facilitating and cross-promoting and collaborating between Supreme and other brands to increase the brand’s visibility around the world. “Luxottica is a big group with a lot of assets,” Zheng said, which could help Supreme position itself alongside higher-end and branded goods. EssilorLuxottica’s revenue growth slowed in the first quarter of 2024, rising 3% to 6.3 billion euros. North America accounts for about 45% of the company’s total revenue this year.

Ramirez added that Supreme’s loyal audience gives EssilorLuxottica the chance to reach Gen Z and connect with a young and new customer base. The Supreme acquisition also comes at a time when the mergers and acquisitions market is in flux, she added. For example, the FTC blocked Tapestry’s proposed $8.5 billion acquisition of Capri. That creates the potential for more unusual deals, like the one between EssilorLuxottica and VF.

This could mean there are more surprising acquisitions 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 still be profitable, but the question is whether the portfolio synergies can work.”