Supreme: An Economic Analysis

Supreme is one of the most peculiar cases in the luxury fashion industry. Starting in the 90s catering to a niche skater demographic and fostering the rise of streetwear fashion, it is now one of the most coveted brands in the world with an evaluation of over a billion dollars despite having only 11 stores worldwide. So how has Supreme achieved this feat of unlimited hype, extreme reselling values and a brand image other companies would die for?

Supreme, in the past decade, has been so successful at peddling the image of their brand to the masses that it is more of a cultural phenomenon built on hype than a business selling its products, despite the fact that they have never spent a single dollar on advertising its products. At the core of this image is of course their vivid red box logo which they put on every single product and has developed worldwide recognition. However, it is so astoundingly similar to the work of conceptual artist Barbara Kreuger that it is difficult not to see it as a direct copy. Copy right infringement and appropriation is a core aspect of supreme that has repeatedly contributed to the notoriety of the brand by associating the brand with other popular brands in pop culture. Collaborations with big name brands in the industry such as Nike, The North Face, Lacoste and of course Louis Vuitton have further built this image and the brand being worn by celebrities by the likes of Justin Bieber, Kanye West and Travis Scott have only refined it. Supreme has adopted a guerrilla approach to marketing and advertising, letting their product speak for themselves through the use of exclusivity and word of mouth. When consumers buy supreme products they are buying the connotation of the brand rather than the product itself.

Supreme products are Luxury goods which means that demand actually increases rather than decreases when the price is increased and/or the supply is decreased. Supreme has utilised this aspect of their brand very effectively by drastically limiting the supply of their products. When the supply runs out, its over, consumers can no longer buy the goods in the primary market. And since the majority of Supreme’s customers don’t live in a city with a store (there are only 11 stores worldwide), or are not willing to spend hours or even days of their time waiting in a line for supreme products, most customers are forced to buy products of the secondary market where prices can be jacked up as much as 500%. This very process develops huge amounts of hype for the goods as a product of the extremely limited supply and image of the brand. Supreme cleverly sacrifices profits to create hype for their products and further reinforce their brand image.

Classical economics cannot explain the behaviour of the market when supreme is involved. How can a business prioritise brand image over profits? The core aim of a business is to maximise profits. Supreme does not operate this way and thus  consumers don’t follow the rules either. Consumers both herd behaviour and bounded rationality which are principles of behavioural economics. Bounded rationality is the idea that a consumer’s ability to make rational  decisions is limited by limited information. This is what allows a consumer to be susceptible to the ‘coolness’ of a product. If a consumer thinks that he or she will be perceived by mates as cool when wearing supreme, the price of the product is less of an influencing factor than the price even though the ‘coolness’ of a product is not something that the company physically sells you. Herd behaviour is the idea that consumers are more likely to do what the masses are doing.. Thus when they see supreme being worn by celebrities and friends they are more likely to buy it because of herd behaviour.

Ultimately, Supreme has used various clever economic techniques to propel itself to success and its billion dollar evaluation.