TOMS Shoes : Expanding Its Successful One For One Business Model

By

Margaret A. Peteraf
Tuck School of Business at Dartmouth

Sean Zhang and Carry S. Resor

Research Assistants, Dartmouth College

**Encountering TOMS Shoes: A Story of Inspiration**

While walking through the airport one day, Mycoskie encountered a girl wearing TOMS shoes.
Mycoskie recounts: "I asked her about her shoes, and she went on to tell me this amazing story
about TOMS and the model that it uses and my personal story. I realized the importance of having a
story today is what really separates companies. People don't just wear our shoes, they tell our story.
That's one of my favorite lessons that I learned early on."

**TOMS' Social Media Success and Grassroots Approach**

Moving forward, TOMS focused more on selling the story behind the shoe rather than product
features or celebrity endorsements. Moreover, rather than relying primarily on mainstream
advertising, TOMS emphasized a grassroots approach using social media and word-of-mouth. With
over 4 million Facebook "Likes" and nearly 2 million Twitter "Followers" in 2020, TOMS' social media
presence eclipsed that of its much larger rivals. Based on 2020 data, TOMS had fewer "Followers"
and fewer "Likes" than Skechers, Nike, and Adidas. However, TOMS had more "Followers" and
"Likes" per dollar of revenue. So when taking company size into account, TOMS also had a greater
media presence than the industry's leading competitors.

**A Business Model Dedicated to Socially Responsible Behavior**

Traditionally, the content of advertisements for many large apparel companies focused on the
attractive aspects of the featured products. TOMS' advertising, on the other hand, showcased its
charitable contributions and the story of its founder Blake Mycoskie. While the CEOs of Nike,
Adidas, and Clarks rarely appeared in their companies' advertisements, TOMS ran as many ads with
its founder as it did without him, emphasizing the inseparability of the TOMS product from
Mycoskie's story. In all of his appearances, Mycoskie was dressed in casual and friendly attire so
that customers could easily relate to Blake and his mission. This advertising method conveyed a
small-company feel and encouraged consumers to connect personally with the TOMS brand. It also
worked to increase buyer patronage through differentiating the TOMS product from others.
Consumers were convinced that every time they purchased a pair of TOMS, they became
instruments of the company's charitable work.

**Customer Satisfaction and Product Value**

As a result (although statistical measures of repeating-buying and total product satisfaction among
TOMS' customers were not publicly available), the volume of repeat purchases and buyer
enthusiasm likely fueled TOMS' success in a critical way. One reviewer commented, "This is my
third pair of TOMS and I absolutely love them! ...I can't wait to buy more!" Another wrote, "Just got
my 25th pair! Love the color! They are my all-time favorite shoe for comfort, looks & durability. AND
they are for a great cause!! Gotta go pick out my next pair." Virtually all consumer reports on TOMS
shoes shared similar themes. Though not cheap, TOMS footwear was priced lower than rivals'
products, and customers overwhelmingly agreed that the value was worth the cost. Reviewers
described TOMS as comfortable, true to size, lightweight, and versatile ("go with everything"). The
shoes had "cute shapes and patterns" and were made of canvas and rubber that molded to
customers' feet with wear. Because TOMS products were appealing and trendy yet also basic and
comfortable, they were immune to changing fashion trends and consistently attracted a variety of
consumers.

**Efficient Distribution and Giving Partners**

In addition to offering a high-quality product that people valued, TOMS was able to establish a
positive repertoire with its customers through efficient distribution. Maintaining an online shop
helped TOMS save money on retail locations but also allowed it to serve a wide geographic range.
Further, the company negotiated with well-known retailers like Nordstrom and Neiman Marcus to
assist in distribution. Through thoughtful planning and structured coordination, TOMS limited
operation costs and provided prompt service for its customers.

**Teaming Up with Giving Partners**

As it continued to grow, TOMS sought to improve its operational efficiency by teaming up with
"Giving Partners," nonprofit organizations that helped to distribute the shoes that TOMS donated. By
teaming up with Giving Partners, TOMS streamlined its charity operations by shifting many of its
distributional responsibilities to organizations that were often larger, more resourceful, and able to
distribute TOMS shoes more efficiently. Moreover, these organizations possessed more familiarity
and experience dealing with the communities that TOMS was interested in helping and could
therefore better allocate shoes that suited the needs of children in the area. Giving Partners also
provided feedback to help TOMS improve upon its giving and distributional efforts. Each Giving
Partner also magnified the impact of TOMS' shoes by bundling their distribution with other charity
work that the organization specialized in. For example, Partners in Health, a nonprofit organization
that spent almost $100 million in 2012 on providing healthcare for the poor (more than TOMS' total
revenue that year), dispersed thousands of shoes to schoolchildren in Rwanda and Malawi while
also screening them for malnutrition. Cooperative giving further strengthened the TOMS brand by
association with well-known and highly regarded Giving Partners. Complementary services
expanded the scope of TOMS' mission, enhanced the impact, and solidified its commitment to
social responsibility.

MAINTAINING A DEDICATION TO CORPORATE SOCIAL RESPONSIBILITY

Although TOMS manufactured its products in Argentina, China, and Ethiopia (countries which have
all been cited as areas with a high degree of child and forced labor by the Bureau of International
Labor Affairs), regular third-party factory audits and a Supplier Code of Conduct helped to ensure
compliance with fair labor standards. Audits were conducted on both an announced and
unannounced basis while the Supplier Code of Conduct was publicly posted in the local language
of every work site. The Supplier Code of Conduct enforced standards such as minimum work age,
requirement of voluntary employment, non-discrimination, maximum work week hours, and the
right to unionize. It also protected workers from physical, sexual, verbal, or psychological
harassment in accordance with a country's legally mandated standards. Workers were encouraged
to report violations directly to TOMS, and suppliers found in violation of TOMS' Supplier Code of
Conduct faced termination.

In addition to ensuring that suppliers met TOMS' ethical standards, TOMS also emphasized its
dedication to ethical behavior in a number of ways. TOMS was a member of the American Apparel
and Footwear Association (AAFA) and was registered with the Fair Labor Association (FLA).
Internally, TOMS educated its employees on human trafficking and slavery prevention and
partnered with several organizations dedicated to raising awareness about such issues, including
Hand of Hope.

GIVING TRIPS

Aside from material shoe contributions, TOMS also held a series of "Giving Trips" that supported the
broader notion of community service. Giving Trips were first-hand opportunities for employees of
TOMS and selected TOMS customers to partake in the delivery of TOMS shoes. These trips
increased the transparency of TOMS' philanthropic efforts, further engaging customers and
employees. They generated greater social awareness as well, since participants on these trips often
became more engaged in local community service efforts at home.

From a business standpoint, Giving Trips also represented a marketing success. First, a large
number of participants were customers and journalists unassociated with TOMS who circulated
their stories online through social media upon their return. Second, TOMS was able to motivate
participants and candidates to become more involved in their mission by increasing public
awareness. In 2013, instead of internally selecting customers to participate in the Giving Trips,
TOMS opted to hold an open voting process that encouraged candidates to reach out to their known
contacts and ask them to vote for their inclusion. This contest drew thousands of contestants and
likely hundreds of thousands of voters, although the final vote tallies were not publicly released.

ENVIRONMENTAL SUSTAINABILITY

Dedicated to minimizing its environmental impact, TOMS pursued a number of sustainable

practices that included offering vegan shoes, incorporating recycled bottles into its products, and
printing with soy ink. TOMS also used a blend of organic canvas and post-consumer, recycled
plastics to create shoes that were both comfortable and durable. By utilizing natural hemp and
organic cotton, TOMS eliminated pesticide and insecticide use that adversely affected the
environment.

In addition, TOMS supported several environmental organizations like Surfers Against Sewage, a
movement that raised awareness about excess sewage discharge in the United Kingdom. Formally,
TOMS was a member of the Textile Exchange, an organization dedicated to textile sustainability and
protecting the environment. The company also participated actively in the AAFA's Environmental
Responsibility Committee.

CREATING THE TOMS WORKFORCE

When asked what makes a great employee, Mycoskie blogged, "As TOMS has grown, we've
continued to look for these same traits in the interns and employees that we hire. Are you
passionate? Can you creatively solve problems? Can you be resourceful without resources? Do you
have the compassion to serve others? You can teach a new hire just about any skill ... but you
absolutely cannot inspire creativity and passion in someone that doesn't have it."

The company's emphasis on creativity and passion was part of the reason why TOMS relied so
heavily on interns and new hires rather than experienced workers. By hiring younger, more
inexperienced employees, TOMS was able to be more cost-effective in terms of personnel. The
company could also recruit young and energetic individuals who were more likely to think
innovatively and out of the box. These employees were placed in specialized teams under the
leadership of strong, experienced managerial talent. This human intellectual capital generated a
competitive advantage for the TOMS brand.

MAINTAINING A DEDICATION TO CORPORATE SOCIAL RESPONSIBILITY

Although TOMS manufactured its products in Argentina, China, and Ethiopia (countries which have
all been cited as areas with a high degree of child and forced labor by the Bureau of International
Labor Affairs), regular third-party factory audits and a Supplier Code of Conduct helped to ensure
compliance with fair labor standards. Audits were conducted on both an announced and
unannounced basis while the Supplier Code of Conduct was publicly posted in the local language
of every work site. The Supplier Code of Conduct enforced standards such as minimum work age,
requirement of voluntary employment, non-discrimination, maximum work week hours, and the
right to unionize. It also protected workers from physical, sexual, verbal, or psychological
harassment in accordance with a country's legally mandated standards. Workers were encouraged
to report violations directly to TOMS, and suppliers found in violation of TOMS' Supplier Code of
Conduct faced termination.

In addition to ensuring that suppliers met TOMS' ethical standards, TOMS also emphasized its
dedication to ethical behavior in a number of ways. TOMS was a member of the American Apparel
and Footwear Association (AAFA) and was registered with the Fair Labor Association (FLA).
Internally, TOMS educated its own employees on human trafficking and slavery prevention and
partnered with several organizations dedicated to raising awareness about such issues, including
Hand of Hope.

GIVING TRIPS

Aside from material shoe contributions, TOMS also held a series of "Giving Trips" that supported the
broader notion of community service. Giving Trips were first-hand opportunities for employees of
TOMS and selected TOMS customers to partake in the delivery of TOMS shoes. These trips
increased the transparency of TOMS' philanthropic efforts, further engaging customers and
employees. They generated greater social awareness as well, since participants on these trips often
became more engaged in local community service efforts at home.

From a business standpoint, Giving Trips also represented a marketing success. First, a large
number of participants were customers and journalists unassociated with TOMS who circulated
their stories online through social media upon their return. Second, TOMS was able to motivate
participants and candidates to become more involved in their mission by increasing public
awareness. In 2013, instead of internally selecting customers to participate in the Giving Trips,
TOMS opted to hold an open voting process that encouraged candidates to reach out to their known
contacts and ask them to vote for their inclusion. This contest drew thousands of contestants and
likely hundreds of thousands of voters, although the final vote tallies were not publicly released.

Environmental Sustainability

Dedicated to minimizing its environmental impact, TOMS pursued a number of sustainable

practices that included offering vegan shoes, incorporating recycled bottles into its products, and
printing with soy ink. TOMS also used a blend of organic canvas and post-consumer, recycled
plastics to create shoes that were both comfortable and durable. By utilizing natural hemp and
organic cotton, TOMS eliminated pesticide and insecticide use that adversely affected the
environment.

In addition, TOMS supported several environmental organizations like Surfers Against Sewage, a
movement that raised awareness about excess sewage discharge in the United Kingdom. Formally,
TOMS was a member of the Textile Exchange, an organization dedicated to textile sustainability and
protecting the environment. The company also participated actively in the AAFA's Environmental
Responsibility Committee.

Creating the TOMS Workforce

When asked what makes a great employee, Mycoskie blogged,

"As TOMS has grown, we've continued to look for these same traits in the interns and employees
that we hire. Are you passionate? Can you creatively solve problems? Can you be resourceful
without resources? Do you have the compassion to serve others? You can teach a new hire just
about any skill... but you absolutely cannot inspire creativity and passion in someone that doesn't
have it."

The company's emphasis on creativity and passion was part of the reason why TOMS relied so
heavily on interns and new hires rather than experienced workers. By hiring younger, more
inexperienced employees, TOMS was able to be more cost-effective in terms of personnel. The
company could also recruit young and energetic individuals who were more likely to think
innovatively and out of the box. These employees were placed in specialized teams under the
leadership of strong, experienced managerial talent. This human intellectual capital generated a
competitive advantage for the TOMS brand.

Together with these passionate individuals, Mycoskie strove to create a family-like work
atmosphere where openness and collaboration were celebrated. With his cubicle located in one of
the most highly-trafficked areas of the office (right next to customer service), Mycoskie made a
point to interact with his employees on a daily basis, in all-staff meetings, and through weekly
personal emails while traveling.

Regarding his emails, Mycoskie reflected,

"I'm a very open person, so I really tell the staff what I'm struggling with and what I'm happy about. I
tell them what I think the future of TOMS is. I want them to understand what I'm thinking. It's like I'm
writing to a best friend."

This notion of "family" was further solidified through company dinners, ski trips, and book clubs
where TOMS employees were encouraged to socialize in informal settings. These casual
opportunities to interact with colleagues created a "balanced" work atmosphere where employees
celebrated not only their own successes but also the successes of their co-workers.

Diversity and inclusion were also emphasized at TOMS. For example, cultural traditions like the
Chinese Lunar New Year were celebrated publicly on the TOMS' company blog. Moreover, as TOMS
began expanding and distributing globally, the company increasingly sought to recruit a more
diverse workforce by hiring multilingual individuals who were familiar with TOMS' diverse customer
base and could communicate with their giving communities.

The emphasis that Mycoskie placed on each individual employee was one of the key reasons why
employees at TOMS often felt "lucky" to be part of the movement. Coupled with the fact that TOMS
employees knew their efforts fostered social justice, these "Agents of Change," as they referred to
themselves, were generally quite satisfied with their work, making TOMS Forbes's 4th Most Inspiring
Company in 2014. Overall, the culture allowed TOMS to recruit and retain high-quality employees
invested in achieving its social mission.

TEN YEARS OF REMARKABLE GROWTH

By 2016, global footwear manufacturing had developed into an industry worth nearly $240 billion.
While TOMS remained a privately held company with limited financial data, the estimated growth
rate of TOMS' revenue was astounding. In the seven years after his company's inception, Mycoskie
was able to turn his initial $300,000 investment into a company with over $200 million in yearly
revenues. As Exhibit 4 shows, the average growth rate of TOMS on a yearly basis was 145 percent,
even excluding its first major spike of 457 percent. During the same period, Nike experienced a
growth rate of roughly 8.5 percent, with a decline in revenues from 2009 to 2010.

The fact that TOMS was able to experience consistent growth despite financial turmoil post-2008
illustrates the strength of the One for One Movement to survive times of recession. Mycoskie
attributed his success during the recession to two factors: (1) As consumers became more
conscious of their spending during recessions, products like TOMS that gave to others actually
became more appealing (according to Mycoskie); (2) The giving model that TOMS employed is not
"priced in." Rather than commit a percentage of profits or revenues to charity, Mycoskie noted that
TOMS simply gave away a pair for every pair it sold. This way, socially-conscious consumers knew
exactly where their money was going without having to worry that TOMS would cut back on its
charity efforts in order to turn a profit.

Production at TOMS

Although TOMS manufactured shoes in Argentina, Ethiopia, and China, only shoes made in China
were brought to the retail market. Shoes made in Argentina and Ethiopia were strictly used for
donation purposes. TOMS retailed its basic Alpargata shoes in the $50 price range, even though the
cost of producing each pair was estimated at around $9.15. Estimates for the costs of producing
TOMS' more expensive lines of shoes were unknown, but they retailed for upwards of $150.

In comparison, manufacturing the average pair of Nike shoes in Indonesia cost around $20, and
they were priced at around $70. Factoring in the giving aspect, TOMS seemed to have a slightly
smaller mark-up than companies like Nike, yet it still maintained considerable profit margins. More
detailed information on trends in TOMS' production costs and practices is limited due to the private
nature of the company.

Expanding the Mission

In an effort to broaden its mission and product offerings, TOMS began to expand both its consumer
base and charitable-giving product lines. For its customers, TOMS started offering stylish wedges,
ballet flats, and even wedding apparel in an effort to reach more customers and satisfy the special
needs of current ones. For the children it sought to help, TOMS expanded past its basic black
canvas shoe offerings to winter boots in order to help keep children's feet dry and warm during the
winter months in cold climate countries.

Entering the Eyewear Market

On another front, TOMS entered the eyewear market in hopes of restoring vision to the 285 million
blind or visually-impaired individuals around the world. For every pair of TOMS glasses sold, TOMS
restored vision to one individual either through donating prescription glasses or offering medical
treatment for those suffering from cataracts and eye infections. TOMS began by focusing its vision-
related efforts in Nepal but by 2020, TOMS had teamed up with 16 Giving Partners to help restore
sight to nearly 800,000 individuals in 14 countries.

Expanding Giving Efforts

Through TOMS' additional product launches of coffee and bags, the company has been able to
expand giving efforts to the global issues of clean water and safe birth. With each pound of TOMS
Roasting Co. Coffee, TOMS gives a week's supply of safe water—140 liters—to a person in need.
They have currently given over 722,000 weeks of safe water. With the sale of its bags, TOMS has
supported safe birth services in parts of the world where there is dire need. This includes helping its
Giving Partners with the vital materials and training necessary for a safe birth. In 2018, TOMS
launched its Impact Grant program to fund short-term projects with measurable goals pertaining to
global issues such as gun violence and mental health. By 2020, they had awarded $6.5 million in
Impact Grants to 14 of their Giving Partners.

A Challenging Future

In December 2019, the coronavirus, now known as COVID-19, struck Wuhan, China, and swiftly
spread around the world. Among the devastating effects of the pandemic were the recessionary
economic consequences. The retail sector was especially hard hit as stores closed, workers lost
their jobs, and discretionary spending plunged. For TOMS, this came at a particularly bad time in
their corporate history. Sales had already started trending downward as the digital revolution
reshaped buying behavior and new competition entered the industry with appealing storytelling
that rivaled TOMS's. Moreover, the partnership with Bain failed to bring about the growth that was
expected. Earnings dropped significantly in 2017 through 2019, leaving TOMS with a debt load that
was unsustainable.

Financial Rescue

Fortunately for TOMS, their creditors came to the rescue just before the coronavirus outbreak,
agreeing to take over the ownership of TOMS from Bain Capital and Mycoskie in exchange for
restructuring the company's debt. This move gave TOMS some necessary relief at a critical time.
With the right strategic moves, TOMS might yet regain its strong position in the industry. But what
are the right strategic moves? Were TOMS's problems the result of the more traditional and
expensive marketing strategy that Bain had advocated, as Mycoskie believed? Were they due to not
enough diversification or too much unrelated diversification, as TOMS entered businesses far from
their strength in footwear (such as coffee roasting)? Is TOMS's One-for-One business model one
that could continue to be utilized successfully in a variety of industries, or is it a model that
depended upon the freshness of its story?

Uncertain Trajectory

Would the uncertain trajectory of the COVID-19 pandemic present a challenge for retailers beyond
the reach of even the most farsighted strategy-making? Only time would tell.