Supreme was just acquired for $2.1B. Here’s how Japan made the fashion brand huge.

Supreme knows how to capitalize on hype.

Renowned for its limited drops and highly coveted streetwear, the brand has bloomed into a $500m/year fashion empire.

And big-money investors have taken note: On Monday, VF Corp — the owner of Timberland, The North Face, and Vans — bought the company for $2.1B from the private equity firm Carlyle.

It started with a skate shop

Supreme began in 1994, when founder James Jebbia opened a skate shop in SoHo, New York, that sold custom T-shirts.

Jebbia’s ambition was to be a “clubhouse” for New York’s skateboarding scene. But that all changed when he was approached by a businessman from Japan.

Jebbia agreed to open 3 stores in Japan over a 6-month span in 1998. Going international encouraged Jebbia to think of Supreme as a brand, and he expanded from T-shirts to all types of apparel.

In the 1990s, Japan was a cultural trendsetter, and Jebbia built Supreme’s brand in East Asia before bringing it back to America.

Supreme uses a network of North American manufacturers

Instead of mass manufacturing in China, the brand was “committed to producing small but high-quality runs of clothing,” writes Complex.

In the early 2000s, Supreme implemented a lottery system for Japanese customers to wait in line, a la new iPhone releases.

Over the years, its elevated brand led to splashy collaborations with the likes of Rimowa, Nike, and Louis Vuitton.

In 2017, PE firm Carlyle Group bought 50% of Supreme for $500m

Carlye currently manages $200B+ and has a controversial past, with various deals in the defense sector.

But the PE giant also knows how to flip culturally important assets, buying 50% of Beats for $500m in 2013 before the headphone company sold to Apple for $3B less than a year later.

With Supreme’s $2.1B sale to VF Corp, Carlyle scored a casual ~2x return on its streetwear investment.

Can the brand keep its allure?

Dan Runcie, who writes on the business of hip-hop at Trapital, notes that VF Corp’s strength is in extending the shelf life of mass-market brands.

The North Face (acquired 2000), Vans (2004), and Timberland (2011) still sell. The problem is that the brands do so through less-than-trendy retailers.

Runcie asks if Supreme fans will still love the brand if they get “an additional 10% off if they sign up for a Macy’s credit card.”

Unfortunately for Supreme, that’s a question that can’t be answered by going to Japan.