Why Supreme’s Business Model [Probably] Won’t Work For You

Last April marked the 20th Anniversary of Supreme — the most powerful fashion/retail brand you may have never heard of. And that’s okay, because if you haven’t heard of them, then you’re probably not meant to [but you should keep reading, anyway]. Even the New York Times said,

No offense, but if you don’t know about Supreme, maybe it’s because you’re not supposed to.

Unlike other companies who want to grow as large as possible, that’s not the goal of Supreme. Or at least their definition of “growth” is significantly different than what you’d expect from a normal apparel company.

Who is Supreme and Why Don’t I Know About Them?

Supreme is the incredibly-well kept secret of cool kids. What started as a skate brand, has now become the leader of streetwear, selling everything from hats and shirts to crowbars and lighters. Year after year, Supreme is voted as one of the best streetwear brands year by publications like GQ and Complex. They’ve collaborated with brands and artists like Nike, Terry Richardson, The North Face, KAWS, Damien Hirst, Playboy, and many others.

The highly-coveted Nike x Supreme Air Force 1 High

Just like people camped out for new iPhone releases with sleeping bags and fold-up chairs, people camp out for new Supreme collections — multiple times every year. And unlike iPhone lines, which are mostly filled with techies who aren’t looking to start fights, Supreme lines are restless and pretty much the opposite.

S0 what makes thousands of people camp out +24 hours for a hat and a t-shirt? Apart from their iconic branding, the hype around Supreme is rooted in their business model.

Never Being a Sell Out = Always Selling Out of Products

Unlike the Nike’s and Ralph Lauren’s of the world, Supreme has never gone commercial and has never been sold in a big box retailer. Since they’ve avoided becoming a sell out, their products always sell out.

Their business model is defined by simple economics, in which demand outweighs supply — significantly. As demand for Supreme increases, the supply becomes more valuable. However, the supply never increases to meet the demand. For a reason.

While other brands re-stock products if they sell well, Supreme never re-stocks anything. That means if you missed out on a new release, you’re not going to be able to walk into Supreme next month and expect it to be sitting on the shelf. This is the true definition of limited edition.

Limited edition only matters when demand outweighs supply. The demand for Supreme is so high and the supply is so low that a second market has been created, naturally. While Supreme could increase their supply, they have chosen not to, which has fueled the second-market of re-sellers — people who buy products just to re-sell them for a profit.

When Founder of Supreme, James Jebbia, was asked about the second market, he said,

I don’t like it very much simply because we try our best to make our clothing affordable for young people, after all Supreme is a skate brand & when I do see our things on ebay the prices are normally at least double what they should be. Basically I don’t like people getting jacked for a T-shirt. I much prefer if someone buys something from us that they plan on wearing it & not selling .

But Supreme knows that as long as they don’t increase their supply, they will be splitting profits with their customers.

Once fans and hustlers recognized an opportunity to make “easy” money, the second market blew up. But the second market didn’t always exist in the way it does today. In Complex’s YouTube documentary, Sold Out: The Underground Economy of Supreme Resellers, they broke down the second market into the four segments below.

The four segments of Supreme’s second market (Credit: Complex)

eBay

For the longest time, eBay had been the golden second market for Supreme products, among others. While eBay provides arguably the safest marketplace for customer-customer selling, the platform has 1) become flooded with fakes, and 2) re-sellers aren’t so fond of the 10% eBay takes from each sale.

D-2-C

Then Instagram came along, which offered a more personal, trust-worthy, and accessible marketplace, sans-fee, for people to buy, sell, and trade Supreme products. Here’s why it works so well:

If a re-seller has a Box Logo T-Shirt and sees a user comment “I need this. Will pay premium” on Supreme’s Instagram post of the shirt, it’s easy for the re-seller to reach out to the user directly and negotiate a quick deal. Re-sellers on Instagram are also leveraging photography and content to make their account feel like a store to build legitimacy.

Conventions

While conventions aren’t necessarily a new concept, they are relatively new to the streetwear and footwear market. Sneakercon, which was founded in 2009, offers a way for collectors to sell their products to masses of fans in-person. It’s a good way for those who want to buy, sell, trade, and window-shop products face-t0-face while avoiding unsafe meet-ups.

Consignment

Consignments shops are no new concept either, but the way products are being consigned is pretty new. Consignment offers a great opportunity for re-sellers and collectors who need help moving product through a source that’s trusted by the community. Consigners no longer need to own a physical space, they only need to own an Instagram or eBay account.

Why You [Probably] Cannot Be Supreme

Ask a streetwear fan or someone who’s starting a streetwear company who their favorite brands are and you’ll undoubtedly hear Supreme. Everyone wants to be like Supreme because Supreme feels legitimately attainable.

Have you ever seen a simple art piece worth a ton of money and said, “Wow, I could have done that?” — that’s what Supreme feels like.

Most people know their brand cannot or will never be a Nike or Calvin Klein, but reaching the level of Supreme doesn’t feel unrealistic, which is actually quite deceiving.

What people often forget is that:

  1. Supreme is a streetwear brand. They’re not corporate or built for the masses. They’re for the niche, cool-kid consumer. They don’t spend millions on the newest technology like Adidas or Levi’s. It legitimately feels like you can produce similar quality items without an insane amount of capital.
  2. Supreme has been around since 1994. They are a product of hype and demand that’s built up over time. That means they stuck to their business model of never re-stocking any hot-selling products for 21 years and counting. That’s hard to do when you’re trying to make as much money as you can, as fast as you can. Once you see a product selling well, I’d imagine it’s pretty hard not to re-release it.

So while I’m not saying you shouldn’t start a streetwear brand and aim to have the success and cult-like following of Supreme, I’m saying it’s important to understand their business model, and why they have become an iconic brand. The business model is only one piece of Supreme’s complex equation, but it’s a good starting point.