by Spencer Patten
There is a new player in town in the world of high end fashion, and it comes rolling along on a skateboard. Supreme, the clothing and streetwear brand, has been making headlines recently for its high prices, long lines, and sold out inventory. With demand being high and supply very low, Supreme stores rarely have inventory yet you can buy their clothing through vendors online. What are the economics behind Supreme, how come you can buy their shirts on apps and not in their stores, and where is Supreme headed in the coming years?
You all have seen the supply and demand curves in Econ 101. Price is on the Y-axis, quantity on the X-axis, and two intersecting lines supply and demand. When Demand increases and supply stays the same, there is a higher equilibrium price. You have heard of superior goods, inferior goods, but what about Veblen goods? Supreme, much like any other luxury brand deals in Veblen goods. In the case of a Veblen good, as the price of a good increases so does the demand for that good. These are often thought of as status symbols since they have no real differentiation in the quality of product both rather just a high price. Why buy a 150$ T-shirt with a red square on its chest? Because you canbuy it, and other people cant.
The secondary market, underground economy, aftermarket or reselling economy is another important factor in the rise of Supreme. Historically, luxury brands have been advocates against a secondary market. In the past five years luxury clothing brand Burberry, burnt 90 million dollars worth of unsold inventory so that it wouldn’t be resold at a lower price. Supreme on the other hand thrives in the secondary market, where it is resold for a higher price than originally released. Thousands of people line up on release day to buy up shirts to resell on secondary market apps you can browse with on your phone. This creates more hype around their products, increases the price of the products, and further reiterates its Veblen good status. Nowadays you can buy anything from supreme flip flops to luxury handbags online. Rather than a consigned or thrift store item, these luxury goods have never been taken out of its original packaging. Resellers thrive off individuals desire to buy something that no one else has. Sometimes buying thousands of dollars worth of clothing, these resellers know that they can turn a thousand dollars into three thousand in a matter of hours.
So what is in store for Supreme in the next few years? Global private equity firm The Carlyle Group just got behind the brand with a 500 million dollar investment for a 50% stake in the company. This injection of cash and billion dollar valuation gives Supreme the necessary capital it requires to continually grow in both the domestic the international markets. As of now, Supreme has three stores in the United States, two in Europe, and six in Japan. The question is how can Supreme sustain sales growth without “selling out” from its humble street wear roots? Supreme’s collaborations with Louis Vuitton seem to be a step in a different direction for the brand. Shedding off its skateboard style for a couture look may be exactly what The Carlyle Group wants. Luxury fashion brands have done consistently well in the past few years, which can be seen in the growth of their stock prices. Whether or not Supreme holds true to its origins, we are sure to keep seeing their shelves empty and clothes fetch top dollar.
Here are some interesting links to learn more about Supreme and the economics of luxury goods: