“As you understood, we love our origins a lot, based on frames and lenses, but the company is now taking a slightly different direction,” said Francesco Milleri, CEO of EssilorLuxottica at the group’s shareholders’ assembly in April, replying to a question related to the potential acquisition of Marcolin by the group. This was widely interpreted then as confirmation of the company’s growing focus on the smart eyewear and med-tech segments through products like Meta-Ray-Ban, Nuance Audio or the Helix digital platform.
While the acquisition of a majority stake in Heidelberg Engineering, a Germany-based supplier of medical devices and IT services for eye care professionals (ECPs), naturally fits into this interpretation, the takeover of Supreme, a global lifestyle brand with a streetwear DNA, which was simultaneously announced earlier today, is probably taking industry observers off-guard, including ourselves. “A slightly different direction” feels like a clear understatement here.
Essilux and streetwear – how do they go together?
Founded in 1994 in New York City by local skaters and artists, the Supreme brand soon established a strong reputation with young urban consumers. It developed into a global direct-to-consumer brand with a strong e-commerce focus and a network of 17 stores across the US, the UK, France, Italy, Japan, South Korea and China. In December 2020, the brand was acquired by VF Corp., owner of The North Face and Vans, among many others.
EssilorLuxottica will fork out $1.5 billion in cash to acquire Supreme from VF in a transaction that is expected to close by the end of 2024, the announcement reads. VF had reportedly invested $2.1 billion to buy the brand.
In its annual report for its fiscal year ended March 2023, VF reported total revenue of $523 million for Supreme, down by 6.8 percent from the previous year. Net income was also down from $82 million in FY 2022 to $65 million in FY 2023, corresponding to a 12.5 percent net margin ratio. For FY 2024, VF only released revenue information for the whole Active segment, which also includes Vans, Eastpak and other brands and saw a 17.2 percent year-on-year revenue drop to $4,062 million.
VF president and CEO Bracken Darrell stressed that while Supreme has returned to delivering strong growth and expanded its presence in China and South Korea, the brand’s distinct business model didn’t fit well in the group’s organization, providing limited synergies. In its annual report, VF notably underscored the brand’s focus on weekly and limited product drops through its direct-to-consumer channel but also different product requirements, seasonality, design or production rates and consumer concentrations and demand.
While they did not align well with VF’s model, these very characteristics represent an incredible opportunity for EssilorLuxottica, according to Milleri: “[Supreme] 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.”
Beyond the expected development of a Supreme eyewear collection, we understand that, with this acquisition, EssilorLuxottica is looking at implementing synergies in areas such as design and marketing to a specific customer group – young and deep-pocketed hipsters in large urban centers worldwide – that its current portfolio of brands only very partially covers. In the group’s current portfolio, Oakley seems like the only brand with direct synergies across various product categories, including apparel. More generally, Supreme’s blitz marketing know-how may have also appealed to the eyewear industry giant.
Although EssilorLuxottica’s move into a different product category – apparel – seems very suprising, the integration of Supreme will be facilitated by the brand’s direct-to-consumer model as the group will not have to handle the potentially complicated entry into a relatively unfamiliar wholesale market. Furthermore, we understand that the production of Supreme products is widely outsourced, limiting supply chain concerns for the eyewear group.
At the time of reporting, only a few hours after the announcement, the group’s shares were down by approximately 2 percent since the start of the trading day at the Paris Stock Exchange.
Essilux also expands med-tech offering
As mentioned above, the announced acquisition of an 80 percent stake in Heidelberg Engineering, a company closer to EssilorLuxottica’s core eyecare business, was rather unsurprising. The acquisition is expected to bolster the group’s presence in the med-tech sector.
Founded in 1980 and operating in over 100 countries globally, the German company supplies diagnostic solutions, digital surgical technologies and healthcare IT for clinical ophthalmology with immediate and obvious synergies with EssilorLuxottica’s instruments unit.
EssilorLuxottica stressed that Heidelberg Engineering would bring its technological and scientific expertise in optical coherence tomography (OCT), real-time image processing and analytics, large-scale data analysis and digital surgical navigation to serve medical professionals, scientists and researchers across various ophthalmic areas.
The transaction is expected to close in H2 2024, pending regulatory approvals and customary closing conditions.
