The objective of corporate social responsibility is to integrate environmental or social issues into its business model. This is a marketing methodology to enhance its reputation and strengthen its brand (Lindgreen et al., 2010). Through its one-for-one business model, Toms adopted a unique concept of providing shoes to solve poverty with every purchase. For the last 14 years, its success was linked to this unique marketing approach, but due to the recent decline in its profits, it was bought out by its creditors in 2019 (Mycoskie, 2012).
In this case study, I will discuss the history of Toms’s success and the reasons for its current fall.
Case Study of Toms Shoes
Bus 5910: Management Capstone
Master of Business Administration
University of the People
Instructor: Dr. Alex Lapshun
Written By: Dr. Mohsen Al Ozaibi
Background of Toms
In 2006, Blake Mycoskie traveled to Argentina as part of a shoe drive, and he witnessed the difficulties and hardship many villagers faced; extreme poverty they could not afford even shoes. This realization was the birthing pod of his business concept. The concept of one-for-one is based on giving for free a pair of shoes for every pair of shoes sold; as part of Toms corporate social responsibility. This innovative idea ensured that the free shoe was built into the price of the sold shoe to contribute to the business’s sustainability and profitability (Anderson, 2017). His idea was ahead of its time; thus, the naming was derived from Blake’s philosophy of “Shoes for a Better Tomorrow,” which became “Tomorrow’s Shoes” and finally settled for Toms as its current trademarked name (Mycoskie, 2012).
Blake Mycoskie based the first design of Toms shoes on the traditional Argentinean shoes, the Alpargata. He found a local shoemaker to create a tailored shoe sample that was comfortable and stylish. He made 250 samples to test in the USA market (Mycoskie, 2012). The sales of the 250 at first were stagnant, but once the Los Angeles Times wrote a story of the shoes and their impact on the children without shoes, it became an instant hit and received over 2200 orders for the shoes. Unfortunately, they didn’t have enough stock nor staff to cover the massive number of orders, as Blake Mycoskie had been working from home alone. He placed an ad for interns to help handle the order logistics while he returned to Argentina to manufacture over 40,000 pairs which were all sold within a few weeks (Mycoskie, 2012).
Eventually, other media venues like Vogue magazine, Time, People, and others helped expand their retail base to Nordstrom and Urban Outfitters. Celebrities and social marketing helped escalate the sales to around 10,000 pairs sold in the first summer (Mycoskie, 2012). In 2009, they were awarded The Award for Corporate Excellence (ACE) due to Toms’s commitment to corporate social responsibility, innovation, exemplary practices, and democratic values worldwide (Daniels Fund Ethics, n.d.). In 2010, Toms was able to donate 1 million pairs of shoes worldwide in over 24 nations and later in the same year reached a new milestone of donating over 10 million pairs of shoes. A significant reason for Toms’s success was due to its unique marketing approaches and social issue promotions. One of the most successful promotions was “one day without shoes” For every person who took an Instagram photo of their bare feet and wrote a hashtag “#withoutshoes” a pair of shoes was donated. Other marketing approaches included social events like “style your own soles” parties in which participants received a pair of white Toms shoes to draw and decorate (Daniels Fund Ethics, n.d.).
In 2013, Toms’s profits were reached 250 million dollars. In 2014, 50% of the company was sold for 300 million dollars to Bain Capital to help diversify and expand the list of products beyond shoes, raising its company value to 625 million dollars (Hessekiel, 2021). This deal was essentially a leveraged buyout, with Toms taking out a loan of 300 million dollars. A spokesman at Bain Capital stated that Toms’s shoes have been synonymous with social responsibilities and an authentic mission-driven organization. They plan to support the continued growth and expansion of Toms’s mission.
Problem Statement
While Toms’ sales started to slump before the Bain Capital purchase, the problems seemed to have accelerated due to a lack of public interest in its essential product, the trademark “Alpargata” slip-on. The “Alpargata” was considered 50% of its business and was 96% of the sales of Toms footwear department. Additionally, factors like Toms’s failure to diversify, aggressive competitors, consumer cost awareness, and questionable impact of its corporate social responsibility led to the unsustainability of profits in its one-for-one business model. Blake created this business model for a stable charitable outcome while still profitable for the stakeholders’ finical and philanthropic aspects (Mycoskie, 2012). Unfortunately, due to Toms’s constant loss of profits after the Bain Capital purchase, they couldn’t repay its $300 million loan to its creditors that was due in 2019. To avoid bankruptcy, ownership of Toms was given to debtholders in 2020 (Hessekiel, 2021). The finical result of the Toms is a clear sign that this business model was unsustainable and unprofitable as it was unable to repay its debt. Currently, the future of Toms is still in question.
Literature Review
Corporate social responsibility is a concept where environmental or social issues are integrated into the business objectives and mission, and in Adam Lindgreen’s entry in the International Journal of Management Reviews, he states that the main reason for corporate social responsibility in any organization is to enhance its reputation and strengthen its brand (Lindgreen et al., 2010). This exactly correlates to Toms’s one-for-one business model.
Toms’s history, background, achievements, and success were demonstrated by the founder himself, Blake Mycoskie’s book “Start something that matters.” The book explains how the inspiration was created from a shoe drive he attended in Argentina. Additionally, the book gives an overview of its philosophy and objective as a for-profit with giving as its core (Mycoskie, 2012). A paper by Daniels Fund Ethics Initiative in the University of New Mexico titled “Toms: One for One Movement” explains the reasons for Toms’s initial success. It linked it to its innovative concept and corporate social responsibility. The author provides different examples of successful marketing strategies, including social events and effective promotions (Daniels Fund Ethics, n.d.). Furthermore, Toms’s success was due to its innovative approach, which was discussed by the author of “innovation as a success key for organizations” (Tohidi et al., 2012).
Unfortunately, Mycoskie’s book lacked any context related to the current situation of Toms acquisition by its creditors due to its inability to repay its 300-million-dollar debt; this topic was covered on Forbes, “The Rise and Fall Of The Buy-One-Give-One Model At TOMS.” There is insufficient information regarding the official company value and profits of Toms, with the only available information is the company’s value after the Bain Capital purchase in 2014 and the profits a year before that purchase; this is due to the company being a private company (Hessekiel, 2021).
Many current articles and papers try to explain the reasons for Toms’s fall. In a video interview with Russ Winer, a professor in marketing at the New York University, he stated that the main reason could be linked to the dependence of Toms on a single product, the “Alpargata” slip-on. This product has become stale and lost its novelty due to imitators at a lower cost. Additionally, the lack of product diversity and innovation led to its downfall. He adds that the one-to-one concept became a fad and the consumer lost interest, and the impact of Toms corporate social responsibility was in question (Kim, 2020).
Much of the existing research involves the corporate social responsibility impact of Toms one-for-one model. Bruce Wydick’s research paper “Shoeing the Children: The Impact of the TOMS Shoe Donation Program in Rural El Salvador,” conducted in 2012, analyzed Toms’s impact on the children and concluded that there are some negative results from these donation programs. He stated that the most significant effect was creating a sensation of aid dependency and negatively impacting local market production. Other statistically insignificant effects were the loss of interest in homework and increased school attendance (Wydick et al., 2016).
Based on the reasons mentioned above for Tom’s failure, multiple alternatives were concluded, including alteration in its business model outcome, innovative product diversity, and product quality production. In the article “Can an old dog learn new tricks? applying traditional corporate law principles to New Social Enterprise Legislation,” by Alicia Plerhoples. She states one alternative to negate the negative impact of the one-to-one program by establishing production in the local market and empowering the people with jobs instead of only donating shoes (Plerhoples, 2012).
An additional alternative is to have a meaningful impact on the corporate social responsibility; the one-for-one program should evolve to a program that has an actual positive impact; Adrianne Pasquarelli addressed this idea in her article “Toms Modernizes brand, introduces new charity model to appeal to gen Z.” She stated by providing charitable contributions from Toms to programs with relevant issues other than poverty that resonate with the consumers like mental health, ending gun violence, increasing equity for Black, Indigenous, People of Color, LGBTQ+, and women (Pasquarelli, 2021).
Another alternative that was discussed linked between consumer loyalty and product quality, according to research in 2020 by Mckinsey and Dynata, which concluded that without quality and proper pricing, there would be no product loyalty (Balchandani, 2021). Additionally, the author of the book “Comprehensive commercial law. 2019 statutory supplement” further provides information regarding consumer satisfaction with product quality (Mann & Warren & Westbrook, 2019). Quality can be evaluated and maintained by utilizing Six Sigma, as stated in the book “Teams that work. The seven drivers of team effectiveness” (Tannenbaum & Salas, 2020). The implementation of Six Sigma using DMADV (Define, Match, Analyze, Design, Verify) was discussed by the author of “Handbook of research on management and organizational history” (Bruce, 2020) and by the author of “Research in personnel and human resources management” (Wheeler et al., 2020), in which both concluded that this could elevate the organization’s production line.
A financial approach as an alternative is recommended for lowering costs, refinance of funds, and improving efficiency to increase profits was discussed by the author in “Team topologies. Organizing business and technology teams for fast flow” (Skelton & Pais, 2019). Through working on accounts payable and Six Sigma implementation, financial stability might be restored, as stated by the author of the book “Lean Six Sigma in higher education. A practical guide for continuous improvement professionals in higher education” (Antony, 2020).
Statement of Cause
The first cause of the problem is the lack of diversity in its product line. Toms has made a bet on one specific shoe model, interpreting the iconic footwear Alpargata’s as a business card (Kim, 2020). Because of this, about half of the production was focused on its manufacturing. In the fashion industry, emphasizing only one model should be avoided. An important conclusion is that management mistakes, incorrect allocation of resources in production, outdated business model and marketing strategy, lack of product diversity and innovation caused the company to collapse. As a result, Toms’s was not able to ensure the financial stability of its enterprise and suffered substantial losses.
Additionally, the introduction of competitors mimicked Toms’s business model and marketing strategy of the product’s corporate social responsibility. Sketchers created a brand-named Bobs that bluntly mimicked Toms’s shoe design, charity outcome and was underpriced, which severely affected the sales of Toms (Kim, 2020).
Furthermore, consumers were finical aware of Toms Shoe’s high pricing, which reached between $45 to $150 with a production cost of only $9. The consumers couldn’t justify the purchase of an Alparagata at that price for a donation of shoes, where there are similar alternatives from competitors costing only $20 (Kim, 2020).
Another issue Toms faced was its charitable activates and their actual impact on those it intended to help. Toms’s marketing concept is based on displaying the difficulties children face without shoes and helping the poor without making any efforts other than buying a shoe. According to Wydick, the results of two research conducted in 2012, with the first research was to see the negative impact of Toms shoes on the local market, and the second was the impact of shoes on the lives of children. He concluded on the first research that the charitable shoes negatively impacted the sales of the local products and thus affected the livelihood of shoemakers. For the second research, the children did enjoy the shoes given to them, yet there was no significant impact on their lives; he added that the shoes led children to be more active outdoors but negatively affected their interest in homework as a result (Wydick et al., 2016).
Additionally, due to the constant corporate social responsibility of Toms Shoes to give, the poor become more dependent on the charities of others and less inclined to work. This harms the ability of the recipients to become dependent. Additionally, the children of the low-income families created a perception that they are solely reliant on charities of others as a requirement and not on themselves. It can be concluded that by providing a pair of shoes, Toms solves a short-term poverty issue and creates long-term problems (Wydick et al., 2016).
Possible Alternatives
The first alternative is to change its corporate social responsibility outcome to have an influential impact; evolving the business model from one-for-one to a 30% profit donation plan provides more flexibility in the charity outcome to be more efficient per dollar than the donation of a pair of shoes. Additionally, moving the manufacturing operations to the local market and creating jobs is a preferred solution to poverty (Plerhoples, 2012). It provides a source of income and enables the individuals to buy shoes themselves instead of depending on the charity of others. This concept is based on the Chinses proverb: give a man a fish and feed him for a day; Teach a man to fish and feed him for a lifetime. This approach will negate the previous negative impact of its business model on the local market and have an actual influential effect on poverty; this might restore and increase public interest at the cost of increased donations and decrease profits.
Another alternative is investing in research and development to improve product diversity, innovation, quality, and price value. Toms’s products should be innovative and diverse, which intrigues and reignites the consumer’s appeal like the unprecedented success of their Alpargata’s. They should concentrate on the critical quality features and less on charity outcomes. According to research in 2020 by Mckinsey and Dynata, loyalty in consumers can be achieved by innovative products that show value for money, product appeal, and ease of access/availability/delivery (Balchandani, 2021). This approach might ignite public interest but will require substantial investments for research and development.
For product quality in the production line, Six Sigma is an alternative due to its simplicity and effectiveness. The modern understanding of Six Sigma is expressed as a philosophy, a methodology, and a set of improvement tools. This model can identify and validate the root causes in Toms to make better business choices based on facts. The Six Sigma philosophy is based on continuous process improvement and necessary reduction detection that an organization must implement (Tannenbaum & Salas, 2020). Progress can be made through radical changes or minor ongoing enhancing modifications, called the Kaizen approach. The improvement goals at Tom Shoes should be oriented toward improving quality, shortening the production cycle, improving jobs, and reducing costs. Six Sigma will give a tighter control over the production, thus, minimizing losses associated with potential market failure of a particular shoe model. Key elements that management should pay attention to are:
- Consumer satisfaction. The quality of any products or services is primarily attributed to customer perception. Whatever techniques or decisions are applied, a consumer is the one who decides whether the good is worth all efforts. A customer expects the producer to meet their expectations and provide high-quality products at a fair price along with premium service and reliability. Quality requirements are hidden in each element of consumer expectations (Mann & Warren & Westbrook, 2019). The objective of an organization is to identify these requirements and address them timely.
- Processes definition and management. Work optimizations and quality enhancement strategically require an understanding of the perspective. All procedures and their elements should maximize the value for the consumer. Therefore, all the unnecessary or low-efficient operations must be reconsidered and eliminated if possible.
An additional alternative is to tackle the organization’s financial instability, and it is worth paying attention to work with loans and credits. The analysis revealed that the company was dependent on borrowed funds and could not conduct its activities independently. To reduce accounts payable and increase receivable, the following solutions are proposed:
- Increase the efficiency of working capital,
- refinance of funds,
- introduce a system of discounts and penalties,
- carry out a strict selection of the client base,
- introduce a system of control of accounts payable and receivable.
Improving the efficiency of working capital can be achieved by influencing the manufactured products, planning system, and organization of production, which is achieved by constant monitoring of the standards and the dynamics of the actual unit costs and turnover of working capital. Since Toms Shoes is an insolvent enterprise, the company is recommended to sign a contract with a factoring company, which will lead to the possibility of obtaining a certain percentage of accounts receivable. The factoring operation allows the company to quickly refinance most of the receivable, reducing the financial and operational cycle (Skelton & Pais, 2019). Constant control over the timing of accounts payable will allow timely payment for debts. It will help to avoid overdue fees and penalties, which, in turn, are an inefficient use of company funds.
Recommended Plan of Action
The First step is to resolve Toms’s image to their core target, as Toms shoes have always been synonymous with millennials and corporate social responsibility. According to Lan Stewart, refreshing Tom’s image to the younger generation is key to success. Currently, they are more tech-savvy, trend-seeking, and influenced by social media, and Toms’s products must resonate with those interests. This can be achieved by tackling relevant issues that resonate with them like mental health, ending gun violence, increasing equity for Black, Indigenous, People of Color, LGBTQ+, and women. Additionally, Toms’s marketing department should analyze the trends and market shifts and concentrate on the most effective demography to ensure products are designed and created to address them. She adds, “If we want to be Gen Z-relevant, it is about having a good set of social values” on social platforms like TikTok and Instagram (Pasquarelli, 2021).
The second step is to renovate and innovate the sales method, from the traditional retailers to e-commerce, by creating a dedicated app, revamping the website, and providing virtual reality viewing of the products. These changes will positively affect sales and decrease overhead costs related to brick and mortar and retailer commission (10 applications of AR/VR that can transform your retail sales completely, 2021).
Thirdly, product diversity, quality, price, and uniqueness can be significant factors in regaining public interest in Toms. According to Blake, people might buy the first pair of Toms to help the cause but will only buy the second if they are comfortable, priced right, and fashionable. This revelation is crucial to creating products that consumers will purchase for the product features and not just for the products’ charity outcome (Isaza et al., 2016).
Finally, the Six Sigma implementation in production, along with previously discussed actions to reduce accounts payable. DMADV (Define, Match, Analyze, Design, Verify) method is a helpful instrument when integrating the Six Sigma concept. The method consists of the following steps:
- Define. It is essential to start by identifying the purpose of new processes. This should be done following the expectations and requirements. A project team is created to design the process (Bruce, 2020).
- Match. The team must elaborate specifications for the identified processes. These specifications will lay a foundation for the process objectives should be defined.
- Analyze. At this stage, each new process in place is to be thoroughly analyzed. The determined characteristics further form the preliminary versions of those operations and a drafted plan for their subsequent execution (Bruce, 2020).
- Design. This stage is necessary to formulate the design and define its characteristics and specifications (Wheeler et al., 2020).
- Verify. Six Sigma process design team verifies that the process meets its objectives
Process management represents a crucial aspect of the Six Sigma methodology. The complexity of the organization implies the simultaneous optimization of existing processes and the introduction of new ones. Managing ever-changing operations becomes quite a challenge, and a dedicated team must constantly identify gaps and improve business operations. Working on accounts payable and implementing Six Sigma in a corporation does not guarantee enrichment, but it can bring back the financial stability and independence of Toms Shoes (Antony, 2020).
Conclusion
The importance of this case demonstrates the uniqueness of any business can only be maintained by constant innovation. Toms’s one-for-one business model was very innovative and unique at its time, and most competitors understood the influences of corporate social responsibilities and eventually mimicked it on marketing their brand and products. Innovation is one of the most important aspects of organizations today and is key to success, and every company should have an innovation process from creation, product design, product introduction, and marketing (Tohidi et al., 2012).
Toms has unique industry-specific risks; as such, Toms doesn’t rely on donations for its charities but depends on its sales profits; thus, the supply chain must be constantly monitored for compliance, efficiency, and maximize profits. Additionally, its charity outcome should be observed to be constantly relevant to the consumers’ agendas to continue to grow. Finally, the products will become stale without product diversity and innovation, and consumers will eventually lose interest (Kim, 2020).
Toms’s success was linked to this innovation, and because the competitors will eventually reach their level of innovation, Toms should constantly be evolving, or else the competitors will surpass Toms, which is evident in the current situation it is in now (Tohidi et al., 2012)
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