Why was it necessary for TOMS to evolve their business model? Who are TOMS most important stakeholders, and why? Is the One for One movement business model appropriate for any other

478 Case 10 If the Shoe Fits: TOMS and the One for One Movement

This case was prepared by Lexie Olszewski, Jennifer Sawayda, and Sarah Sawayda for and under the direction of O.C. Ferrell and Linda Ferrell, © 2019. It was prepared for classroom discussion rather than to illustrate either effective or ineffective handling of an administrative, ethical, or legal decision by management. All sources used for this case were obtained through publicly available material.

Introduction TOMS Shoes is a for-profit business with a large philanthropic component. The company was started after entrepreneur Blake Mycoskie witnessed the poverty among villagers in Argentina, poverty so extreme that the villagers could not even afford a pair of shoes. Mycoskie returned to the United States with 200 Argentinian shoes and a mission. He went from one retail store to another with a unique business proposal. He would start an organization that would provide a pair of shoes for an Argentinian child in need for every pair of shoes purchased from his business. After many meetings and discussions, a few Los Angeles boutiques agreed to sell the shoes. Mycoskie’s idea was eventually picked up by the Los Angeles Times, who ran an article on his extremely unique business idea. To his surprise, the following weekend garnered $88,000 in orders. The orders didn’t slow down there, and two years after officially establishing TOMS Shoes, the business had $9.6 million in revenue.

Most firms do not want other companies to copy their successful business model. However, the shoe retailer TOMS is not your typical retailer, and the firm’s business model is unusual to say the least. While many organizations try to incorporate social entrepreneurship into their business operations, TOMS took the concept of philanthropy one step further by blending a for-profit business with a philanthropic component in what they termed the One for One model. For every product purchased, TOMS donates products or resources to help those in need. The cost of providing the products to those in need is already built into the products’ sales price, turning the customer into the benefactor. The philanthropic component is just as important as the for-profit business for TOMS. TOMS’ goal is to be able to turn a profit, support themselves, make the world a better place, and educate consumers, all at the same time.

TOMS has applied the One for One model to its other products as well. For every product purchased, including TOMS Shoes, TOMS Eyewear, and coffee bags from TOMS Roasting Co., TOMS will help a person in need. For every pair of glasses sold, for example, TOMS provides a person in need with a full eye exam and treat- ment including prescription glasses, sight-saving surgery, or medical treatment to restore their sight. For each bag of TOMS Roasting Co. Coffee purchased, TOMS gives an entire week’s supply of safe drinking water to a

person in need. When consumers buy a TOMS product, they get the additional value of helping others.

In this case, we discuss Mycoskie’s revolutionary business model and how it has achieved such success. We begin by analyzing the background and origins of the TOMS Shoes business concept, and then discuss TOMS’ operational approach, including how the organization manages to carry out their central mission. Their unique corporate culture is a necessity for the successful opera- tion of TOMS, which is examined along with the firm’s marketing strategy. Next, we analyze how this business model has impacted today’s society, as well as other busi- ness organizations. Then, we evaluate changing attitudes toward social issues and how TOMS has responded. We discuss various criticisms and risks that TOMS faces on a daily basis, as well as the company’s decision to evolve their famous One for One model. Last, we conclude by speculating about the future of TOMS as a business.

The History of TOMS Blake Mycoskie is the founder and Chief Shoe Giver of TOMS Shoes. Before founding TOMS Shoes, Mycoskie had started five companies that ranged from billboard advertising to laundry services. His foray into the shoe industry, however, was almost accidental. After participating in the 2002 Amazing Race reality television show, Mycoskie decided to return to all the countries he had visited during the show. When Mycoskie returned to Argentina in early 2006, he had no idea that the coun- try’s backwoods would be the inspiration for his new company. When interacting with the local villagers, he immediately noticed that many of the families could not afford a pair of shoes for their children. He was shocked and deeply saddened to see the number of children forced to live barefooted every day. This observation stuck with him for the remainder of his trip, and when he discovered the Alpargata (the comfortable and unique farm shoe worn by some of the locals), his initial idea for TOMS was born. He completed his trip in Argentina and left the country determined to take action for all of those children he saw in need.

Upon coming back home, Mycoskie sold his online driver education company for $500,000 and used that money to finance the creation of TOMS Shoes. TOMS was derived from “tomorrow,” which was taken from the original company concept: “the shoes for tomorrow proj- ect.” After a lot of hard work, TOMS Shoes opened for

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business in May of 2006. In addition to their core shoe- selling business, the company also runs the non-profit subsidiary known as Friends of TOMS. The for-profit and non-profit organizations work in conjunction to operate the TOMS enterprise. Since their founding, TOMS has been widely successful across the entire United States, even drawing the attention of well-known celebrities. Scarlett Johansson and Keira Knightley were among the first to publicly endorse TOMS Shoes. Internationally, the non-profit side of the business is also making a huge impact in communities, evidenced by the 88 million shoes that have been distributed to children in need.

The TOMS Movement TOMS initially made the decision to develop their business model and, therefore, their product line around shoes for several key reasons. Mycoskie knew from his travels that many children in impoverished countries live in areas with unsafe terrains. He saw firsthand the lack of paved roads and other common hazards that could cause injury for children walking around barefoot. In fact, children can contract a range of soil-transmitted diseases from not wearing shoes. For example, soil- transmitted Helminthiasis, an infection developed from intestinal worms, is common in South Africa. Simply wearing shoes can prevent many diseases, and Mycoskie wanted to help. Mycoskie also understood the value of education. In many nations, shoes are required in order to attend school. Owning a pair of shoes provides a child with an opportunity to be educated, leading to higher school attendance. According to TOMS, this combination of education and health provides children the opportunity for a better tomorrow.

As mentioned, Mycoskie’s organization consists of two parts: TOMS Shoes and Friends of TOMS. TOMS Shoes is a for-profit company that manages the overall operations and logistics. Friends of TOMS, the company’s non-profit subsidiary, is responsible for organizing vol- unteer activities and all “shoe drops,” when shoes are distributed to communities in need. This was critical to the One for One business model that TOMS popularized. The model was simple: for every pair of shoes that TOMS sold, they donated a pair of shoes to a child in need on behalf of the customer. The One for One model enabled Friends of TOMS to remain in operation because the shoes sold covers the cost of the shoes for countries in need. Mycoskie dubbed this business system “Philanthropic Capitalism” because the company makes a profit but incorporates philanthropy into their business strategy. The company’s ultimate vision is to demonstrate the effect of how working together as a society can “create a better tomorrow by taking compassionate action today.”

The philanthropic component of TOMS contributed to their widespread popularity among consumers. One consumer survey revealed that nearly half of respondents had purchased or would purchase items during a

certain time period if part of the revenues supported charitable causes. Cause-related marketing is growing and businesses like TOMS Shoes—where philanthropy is embedded within the business model—are likely to attract the support of consumers who want to make a difference. TOMS has developed successful collabora- tions with recognizable brands such as Ralph Lauren and Element Skateboard. Ralph Lauren worked with TOMS to develop a co-branded Polo Rugby shoe, which maintained the One for One premise. Element Skateboard joined forces with TOMS to fashion a limited edition TOMS+ Element shoe, donating a pair of shoes to a child in need for each pair sold. To further the One for One movement, Element Skateboard also promised that for every skateboard purchased, one would be donated to a child participating in the Indigo Skate Camp in Durban, South America.

In the beginning, TOMs did not have a marketing budget and relied on word-of-mouth, viral marketing, and social networks to spread their marketing efforts. Word-of-mouth can be one of the most effective forms of marketing because many consumers believe it to be more trustworthy than corporate advertisements. The challenge for any organization is to convince customers to talk about their products. For TOMS Shoes, many customers are excited that their purchase is going toward a good cause and are eager to discuss it with others. TOMS Shoes has taken proactive steps to encourage word-of-mouth communication. Each pair of TOMS Shoes comes with a blue-and-white TOMS flag and a small card asking customers to take pictures of themselves wearing their new shoes and holding up the flag. The customers are then asked to upload those photos to the “HOW WE WEAR THEM” section on the company’s website, in addition to social networking websites such as Facebook and Twitter. The photos of customers using TOMS’ products increase both product awareness and the credibility of the brand.

TOMS’ Supply Chain Due to their lack of knowledge about the shoe industry, Mycoskie and his team initially faced supply chain management problems. Mycoskie was unaware how fast the demand for TOMS Shoes would escalate. Two weeks after Mycoskie began selling his products to retailers, a fashion reporter wrote an article about Mycoskie’s busi- ness and mission in the Los Angeles Times. The TOMS’ website sold 2,200 pairs of shoes that same day—but Mycoskie had only 40 pairs available. The situation required him to hire interns to personally call customers and ask them to wait eight weeks for delivery. Mycoskie then flew back to Argentina where he had 40,000 shoes manufactured. Amazingly, all pairs in the batch were sold within the next few weeks.

Since then, TOMS has improved at managing their increasingly complex supply chain. They have opened up

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additional manufacturing factories in China, Argentina, and Ethiopia and plan to open another location in Brazil. These factories are audited by third parties to ensure that workers are being treated fairly. TOMS has their factory workers sign a code of conduct stating that they will follow all the stipulations of TOMS Shoes. TOMS’ production staff visits each of the factories on a regular basis to verify that the factories are continuing to adhere to the code of conduct and other working standards. TOMS’ manufacturing standards are modeled after International Labor Organization compliance standards.

Over 500 retailers around the world now carry TOMS’ shoe collections. In their first couple of years in business, TOMS was able to secure distribution deals of their shoes with Nordstrom, Bloomingdale’s, Neiman Marcus, Whole Foods, and Urban Outfitters. TOMS has also expanded to retailers that are independently owned small businesses. TOMS continuously seeks retailers that are passionate about their firm’s mission. Retailers are able to purchase the bulk of their shoes at cost from TOMS, and thus are able to turn a profit as well as support the One for One movement. All shoes that the retailers purchase are directly shipped to the retailers— TOMS does not operate on a consignment basis. TOMS Shoes are sold in retail stores in the United States, the United Kingdom, Australia, Canada, Germany, and France. Consumers can also purchase TOMS Shoes on their website.

Manufacturing the shoes and selling them to custom- ers is only the first step of the process. Next, TOMS must distribute shoes to the children that need them. TOMS collaborates with nonprofits to identify children in need. These Giving Partners must be actively involved with the children in their communities and objectively evaluate where TOMS Shoes can have the biggest impact on children’s lives. The organizations that TOMS chooses are found in the humanitarian, health, and education fields. For instance, TOMS has worked with Partners in Health to distribute shoes to children in Haiti and the health organization SANA Guatemala to distribute shoes to Guatemalan children. In Argentina, TOMS works with an organization that provides Podoconiosis treatment programs, assisting children who are at a high risk of developing the disease. In Rwanda, TOMS is currently partnering with a non-profit business to help with over 100,000 genocide orphans. TOMS also works with a Zimbabwean organization to provide shoes to children who make extensive walks to school in various weather conditions.

In order to become a Giving Partner, organizations must go through audits to ensure that they meet TOMS’ specific criteria. These five criteria are detailed in Table 1. Through TOMS’ Giving Partnerships, locations are iden- tified to show where providing a pair of shoes to children in need contributes the most toward improving the standard of living for the community. When a customer purchases a pair of TOMS’ shoes, a child in the chosen

community will receive a pair of shoes approximately four to six months after the initial date of purchase. Currently, TOMS distributes shoes to children in need in 24 different countries around the world.

Friends of TOMS helps coordinate shoe drops to various communities. Every time a shoe drop occurs, TOMS seeks volunteers and individuals affiliated with TOMS to fly to the area for one week and work with their partners to distribute the shoes. Those involved in the shoe drop personally place the shoe on each child’s feet.

Even after the shoes have been delivered, TOMS continues to maintain relationships with their Giving Partners and communities. TOMS constantly monitors their partners for accountability. Additionally, the orga- nization recognizes that one pair of shoes is not going to last for the child’s entire lifetime. Therefore, as the children grow out of their shoes—approximately every six months—TOMS provides replacement shoes to these same children on a regular basis. A schedule is set up with the identified community and local Giving Partner to maintain a regular shoe drop for the children. TOMS believes that repeat giving allows them to understand the locale’s needs more thoroughly. TOMS also works to adapt their products to account for the region’s terrain, weather, and education requirements.

TOMS’ Product Line TOMS’ original product lines were derived from the Argentinian Alpargata shoe design worn by farmers in the region. The shoe is made from either canvas or a fabric material with rubber soles. Since their inception, TOMS has introduced different styles of shoes, such as the Bota and the Cordones, along with wrap boots and wedges. The Bota resembles an ankle boot with soft materials, while the Cordones are more of a traditional canvas-style sneaker with laces. In addition, the chil- dren’s line includes Velcro Alpargatas.

TOMS has also created other varieties of shoes, such as Vegan TOMS and the wedding collection. Vegan

Table 1 Criteria to Become a Giving Partner Sustainable: Giving Partners work with communities to address their needs in a way that will enable the community to meet its own needs in the future. Local: We seek locally staffed and led organizations that have a long-term commitment to the regions where they work. Need: TOMS’ support furthers our Giving Partners’ long-term goals and is integrated into their programs. Evolving: TOMS is committed to improving our Giving by continually evolving. We look for partners who can report back to us on how we can improve. Neutral: TOMS products and services are provided to help people in need. Our partners do not distribute them with any religious or political affiliations.

Source: “The Qualities We Look For,” https://www.toms.com/thoughtful-partners (accessed January 2, 2019).

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TOMS are comprised of 70 percent recycled plastic bottles and 30 percent hemp. Hemp is an extremely sustainable product that outlasts organic cotton. TOMS is committed to creating more products that are better for the environment. Additionally, TOMS introduced comfortable shoes meant for weddings. Wearing com- fortable slip-on shoes to a formal event may seem odd, but some young people have already worn TOMS for prom.

Not all the shoes that are available for purchase are actually donated to children. TOMS does not give the wedge or the wraparound boot to children. Primarily the shoe that is bestowed on children is the canvas Alpargata with modifications to suit local residents. With each new community that TOMS enters, research is conducted to learn about the environment and terrain. TOMS alters their shoes to fit the children’s lives. For example, in some of the regions that experience monsoons, the shoes! include more of a ridged thicker rubber sole. The!shoes are typically black because that is the required shoe color to attend school in several countries. TOMS has also developed a wider shoe due to the fact that children living barefoot for the majority of their lives tend to have wider feet.

Aside from selling shoes, TOMS has expanded into selling apparel, including TOMS t-shirts, sweatshirts, and caps. Any of the apparel purchased also comes with the One for One movement guarantee, meaning that for every t-shirt purchased a pair of shoes will still be given to a child in need. TOMS has also started selling the TOMS flag, stickers, necklaces, and gift cards. After distributing their one-millionth pair of shoes, Toms began to consider other products that could be used in the One for One model. Mycoskie explained, “When I thought about launching another product with the TOMS model, vision seemed the most obvious choice.” Because 80 percent of vision impairment in developing countries is preventable or curable, TOMS decided that for every pair of eyewear they sold, the company would provide treatment or prescription glasses for those in need. TOMS chose Nepal as the first country in which to apply their One for One model for eyewear.

In 2011, TOMS launched TOMS Eyewear, which has helped provide prescription eyewear to more than 770,000 people in need. The company works in 13 countries to provide prescription glasses, medical treat- ments, and even sight-saving surgery with each purchase of eyewear. Along with restoring sight, TOMS Eyewear supports community-based eye care programs, creation of professional jobs, and trainings to local health volunteers and teachers. TOMS Eyewear purchases provide economic opportunities, gender equality, access to education, and restored independence.

In 2014, TOMS made the decision to expand the One for One model into the coffee industry and started TOMS Roasting Co. Each purchase of a bag of TOMS Roasting Co. coffee provides an entire week’s supply of

safe drinking water to a person in need. More than 780 million people don’t have access to safe water systems. TOMS works with Giving Partners that have expertise in water, sanitation, and hygiene to help create sustain- able water systems in seven countries, from the same regions where coffee beans are sourced. Since launching in 2014, TOMS has helped provide 335,000 weeks of clean water in 6 countries. By supporting and working to provide sustainable water systems, TOMS is helping provide communities with access to safe water, which has a clear trickle-down effect. With safer water comes improved health, increased economic productivity, job creation, and better access to education.

TOMS has also invested in the health care of mothers and babies in need by distributing birthing kits. TOMS Bag Collection was founded in 2015 with a mission to provide training for skilled birth attendants and to distribute birth kits containing items that help a woman deliver her baby safely. As of 2018, TOMS has supported safe births for over 175,000 mothers. Each purchase supports one delivery of a safe birth kit, two trainings for skilled birth attendants, and three healthy deliveries for newborn babies and mothers. With proper training and materials to deliver babies, mothers are 80 percent less likely to develop an infection, which means communities can prevent almost half of newborn deaths. In 2015, TOMS also first introduced the High Road Backpack, which helps fund the training of school staff and crisis counselors to prevent and respond to the widespread problem of bullying in schools.

TOMS’ Corporate Culture When the business first started, TOMS did not have a lot of money to pay individuals. The company instead focused on hiring individuals who were passionate about their mission instead of being passionate about money. Due to the lack of finances, Mycoskie hired recent col- lege graduates and even high school graduates. Despite their youth and inexperience, the employees consistently rose to the occasion. Because TOMS did not initially engage in traditional advertising, it was important to have enthusiastic employees willing to spread the word about the organization.

TOMS soon realized that full-time employees were not the only ones willing to help the company achieve their mission. The company also relies upon interns to spread the word and support their endeavors. Employees and interns alike know that their work is supporting a good cause, and many even get to participate in their own call-to-action by participating in shoe drops.

Internships The company started off with Mycoskie and two interns who managed to propel TOMS into a successful business. The success of those two initial interns has

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prompted the company to hire interns each year through the nine-week, full-time TOMS Internship Program at the TOMS headquarters. TOMS provides their interns with a high degree of responsibility in the individual’s chosen discipline, whether it’s online marketing, retail marketing, or operations. Intern classes include eight to ten college seniors and recent graduates. The number one criterion that TOMS looks for in the applicants are that the individuals truly believe and are enthusiastic about what TOMS stands for. According to TOMS, the company would not be where they are today if it were not for the hard work of their diverse team of interns. When an internship ends, a TOMS’ intern coordinator works with the intern to strengthen his or her resume with an updated work summary of the experience gained at TOMS. The intern coordinator also provides guidance on future development of career goals.

One Day without Shoes Perhaps the most popular event promoting TOMS is the One Day Without Shoes campaign. This campaign was started in 2008 to raise public awareness about the impact that a pair of shoes can have on a child’s life. It asks the average individual to go one day without shoes. Going without shoes engages individuals to see how it feels to be in these children’s situations. The premise is to instill a sense of appreciation for what a difference a pair of shoes can make. Furthermore, the sight of a large group of barefoot individuals walking around makes an impression on others. In both cases, TOMS’ mission and their brand are spread to those that otherwise may not have known about it. The success of this campaign, which continues to grow every year, is largely due to college students and Campus Clubs nationwide. Participants have included Kristen Bell, Charlize Theron, the Dallas Cowboys Cheerleaders, Nordstrom, and Microsoft.

Social Media TOMS has effectively used social media to spread the word about the company and their mission, a method that is less costly than traditional advertising and creates a unity among the individuals that promote TOMS. TOMS has used viral videos, blogs, Facebook, and Twitter to spread the message about their cause. Their approach has allowed TOMS to reach a vast audience worldwide. TOMS maintains their own blog to educate the public about current events in the company and their shoe drops. The company has also posted clips on YouTube. In addition, many consumers create their own digital content regarding their experiences with TOMS Shoes. By encouraging events and word-of-mouth com- munication, TOMS is allowing consumers to do much of the marketing for the company.

TOMS’ Impact During their first year in business, TOMS managed to donate 10,000 shoes to children living in Argentina. Since then, TOMS has expanded to distribute shoes to other regions of the world. Now, TOMS has given more than 100 million pairs of new shoes worldwide. TOMS gives in over 70 nations around the world including Argentina, Peru, Ethiopia, Rwanda, and South Africa.

TOMS was awarded and honored in 2007 with the People’s Design Award from the Cooper-Hewitt National Design Museum, Smithsonian Institution. TOMS was also awarded the 2009 ACE award given by Secretary of State Hillary Clinton. The Award for Corporate Excellence recognized TOMS for their “commitment to corporate social responsibility, innovation, exemplary practices, and democratic values worldwide.”

Under Mycoskie’s inspirational leadership, the com- pany’s One for One concept has inspired other firms— such as eyeglass retailer Warby Parker—to adopt similar models as a way to give back to society. Rather than feel threatened, Mycoskie is funding social entrepreneur- ship firms with similar missions. However, Mycoskie’s revolutionary idea might be difficult to replicate in other fields. The One for One concept must be embedded into the business strategy. The business must also be sustainable on its own, which is difficult to achieve for many nonprofits that depend upon fundraising. The product and mission must be something that people will care about. For the movement to work effectively, the product should be tangible and identifiable. Product differentiation is an important component for success, as consumers appear less able to identify with commodity products.

Mycoskie offers additional advice to entrepreneurs who want to create business that will make a difference in the world. He advises businesses to look at their strengths and comprehend how those strengths can be used to help those who need them the most. For instance, TOMS Shoes and their Giving Partners study the com- munities before dropping off the shoes to ensure that the shoes will make a positive difference in children’s lives. They pick out the communities that appear to have the most need for their products. According to Mycoskie, it is important that companies with a philanthropic focus allow their products to speak for themselves. The products should be able to impress consumers, prompt- ing them to spread the word to others without constant marketing from the company.

Not many businesses have attempted to replicate the One for One movement in terms of incorporating it into their business models. Two companies that have created businesses around this concept include a bedding and mattress organization, which donates one bed to those in need for every product bought, and an apparel store, which will match customers’ purchases by giving clothes

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to those in disadvantaged areas. Time will tell whether these companies, and additional organizations, will succeed to the extent of TOMS Shoes.

Evolving the Mission Social issues such as bullying, gender equality, inclusion, and homelessness have been key area of TOMS’ philan- thropy. However, in 2018 Mycoskie boldly introduced the End Gun Violence Together initiative as the company’s primary focus. To kick off the initiative, consumers could visit the TOMS website to deliver postcards sup- porting gun safety laws to government representatives. The postcard initiative attracted 700,000 participants. Mycoskie appeared on The Tonight Show multiple times to champion the cause and has hosted rallies in Washington, D.C., to support the Bipartisan Background Checks Act of 2019, which was passed in February 2019.

In the face of slowing sales, Mycoskie said

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