Case Study #24: TOMS Shoes, Inc. One for One Movement Represents Global Social Responsibility

I blog about how brands across a wide range of industry verticals weather this economic storm, albeit receding, through product innovations, organizational collaboration and extensive analysis and research. It is my goal to remain aligned with the Stratelysis brand promise.

After learning and reading about TOMS Shoes, Inc. (www.tomsshoes.com), I cannot help but to dedicate today’s post to Chief Shoe Giver Blake Mycoskie and his global shoe giving movement. Does Mycoskie innovate something new in the footwear category? Not really. Does he have a sophisticated quantitative methodology to accomplish a global shoe giving goal of 300,000 units by the end of the year? Perhaps, but we don’t have transparency behind the rationale of that goal. Mycoskie has support from several stakeholders to achieve his vision. Read about his movement – Wouldn’t you want to be involved?

But, Mycoskie’s title of Chief Shoe Giver is what makes me want to extend Stratelysis updates into another area of research – Being a successful global brand exclusively in context of global social responsibility.

One major factor in securing funds to execute a business is sizing and forecasting customer demand. And when the rest of the “ducks are lined up” in a business plan and blessed by a group of investors, an organization is created and soon begins its life. People are hired, receive titles and execute their roles in context of the business strategy.

Three years ago, Mycoskie visits Argentina and sees several children walking around without shoes (market sizing) and realizes that children lacking footwear is a major issue in the developing world (market forecast). So, he creates TOMS Shoes, Inc.(blessing of the business plan) and gives himself a title to execute his role in context of global social responsibility (Chief Shoe Giver who wants to give 300,000 pairs of shoes to children in need). So, Mycoskie’s business is not built on his identification of a profitable niche of global shoe customers. Rather, TOMS Shoes is built on the identification of a major issue in the developing world. The “customers” definitely do not represent a “profitable niche” – Their feet of these children are sadly bruised and cut because of a lack of proper, if any, footwear.

TOMS Shoes is a business, but let’s think about the margins for the One for One movement. For every shoe that is purchased from TOMS Shoes, Inc., one pair will be donated by the company to a child in need. Let’s say TOMS shoes hits their sales goal of 300,000 units by the end of this year. I will assume the average transaction price of a shoe is $60. That is $18 million in shoe revenue. Assuming a 50% gross margin, 30% of revenue for SG&A and the unavoidable high corporate tax rate, the net profits from the shoe product line will be about $4 million. If it costs half of the average transaction price to manufacture the shoes and an incremental amount above that to donate the shoes, Mycoskie may likely run negative profitability for his shoe business.

There are a few sources that help Mycoskie offset these losses. First, his business sells other items besides shoes, such as apparel and stickers. These items are lower in price than the shoes, but generate an additional revenue stream for the company. Also, TOMS Shoes distributes the shoes via recognized 501(c)(3) non-profits and Non-Governmental Organizations (NGO’s). It partners with Friends of TOMS, a 501(c)(3) non-profit organization that creates and coordinates avenues for further involvement in the TOMS One for One movement. This includes Shoe Drop Tour volunteer opportunities. Also, TOMS Shoes aligns with other brands to support its vision. TOMS Shoes works with Ralph Lauren Rugby to distribute one shoe model: http://tr.im/Br6a. AT&T works with TOMS Shoes to work on the “More Bars In More Places” campaign. That is when I first hear about TOMS Shoes. Partnerships help boost brand awareness while sharing operational costs.

These are some of the several efforts to help TOMS Shoes sustain its business so it can continue to do achieve its vision of global social responsibility. Please see the videos on the right-hand navigation bar to see how this brand is impacting the world.