Quantfury Gazette

Ray-Ban owner EssilorLuxottica (CBOE: EL) makes a Supreme® play

by
Nathan Crooks
Quantfury Team
supreme

EssilorLuxottica (CBOE: EL)—the Italian-French eyewear conglomerate known for brands including Ray-Ban, Oakley, LensCrafters and Sunglass Hut—raised eyebrows earlier this month, saying it would pay $1.5 billion in cash for the American skateboarding clothing line Supreme that’s famous for slapping its bold red logo on just about anything.

Founded thirty years ago in New York City, Supreme is known for its limited product runs and celebrity imagery, and it embraces scarcity to the point that its online store is out of products at the moment. That’s a vastly different distribution model from the one employed by EssilorLuxottica, which dominates the eyewear industry and is often accused of having monopoly power. It’s so ubiquitous that it can be hard to buy sunglasses or prescription frames that are not made by the company. 

“It perfectly aligns with our innovation and development journey, offering us a direct connection to new audiences, languages and creativity,” EssilorLuxottica CEO Francesco Milleri said, even though some analysts questioned just what the company would be able to do with a brand mostly known for skateboards and hoodies. Supreme will be allowed to preserve its identity and fully-direct commercial approach, he added. EssilorLuxottica saw revenue rise a healthy 5.5% in the first quarter to $6.9 billion, but its shares have since declined 6% over the past month. 

Current owner VF Corporation (NYSE: VFC), which paid $2.1 billion for Supreme in 2020, said just two months ago in an earnings call that the brand was a “strong performer” with double-digit sales growth in the last quarter amid an expansion into Asia. In an abrupt about-face, however, CEO Bracken Darrell said last week that Supreme’s “distinct business model” no longer fit with its integrated business structure and had limited potential for further synergies. VF shares surged 20% on the news that it was unloading the brand.

EssilorLuxottica, which is also highly integrated, thinks it can do better. While the move may seem like a stretch into unfamiliar territory, the company’s business for years has centered on charging people hundreds of dollars for overpriced frames. It’s not all that different from Supreme, which can command a premium for anything it sticks its name on. Spending billions for a simple red square logo with big white letters might seem supremely extreme, but EssilorLuxottica is betting shoppers will continue to pay a premium for the brand it will now be able to integrate and scale into its existing portfolio. Get ready for those Supreme Ray-Bans.

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