Toms Shoes: The Big Business of Being Good

Bad boys are no longer in style, and it looks like being good is the new black. Many companies are now incorporating feel good, do good deeds directly into the culture of their business models. It’s not an afterthought. It’s the core foundation built right into the structure of the business from the get-go. Businesses obviously have been “giving back” for years – that’s not new. But what is new is the trend of making the giving back itself the business model, in some cases superseding the importance of product that is being sold. This is called Social Entrepreneurship.

Deeds that were once left in the hands of the non-profit sector, now have spread their wings and landed in the for-profit arena. Some savvy entrepreneurs are now realizing that harnessing the power of doing good can make for a nice profit, an undeniably positive brand image, a loyal customer base, unlimited PR opportunities, and last but not least, charity.

Companies like Terracycle and GotBooks.com are following this basic model, but one company that seems to be mastering it is Toms Shoes. Toms is a company founded by Blake Mycoskie in 2006. Blake is in the business of making and selling shoes, but ironically, the product that his company produces and sells is secondary to what his company does.

While traveling on a polo vacation in Argentina, he noticed that the impoverished village adjacent to the polo field was filled with children who were all running around barefoot. Because these children did not have shoes, they were not allowed to attend school and they were susceptible to various diseases that could be picked up from the ground. On his way flying back home from his vacation, Blake decided that he would start a company that would make shoes, sell shoes and give one pair away to needy children for every pair sold. He calls it the “One for One Movement.” This is all very good. He is doing a good thing by helping needy children, I will definitely not argue with that. But don’t forget, he is in the business of making money too.

I’ve been in the shoe business, so I have a pretty good sense about the cost of shoes. Toms Shoes retail for $48. Knowing approximately what shoes of this type would cost to manufacture, I would estimate that in a typical retail scenario, these shoes should retail for about 1/2 of what Toms is charging. These are basic shoes, known as alpargatas or espadrilles. They are simply constructed out of inexpensive materials by low cost labor in Argentina, China and Ethiopia. There are other similarly constructed shoes on the market selling for about $20 – $24.

My point is that Toms charges about twice what would be expected for a shoe of this type in order for the consumer to pay for the additional pair that Toms gives away. Toms is technically giving shoes away, but seems to be passing on the cost of giving them away to the consumer, and even making a profit on the giveaway pair as well. The consumer really is the benefactor in this scenario, not Toms. Another way to look at it is that rather than Toms selling one pair and giving one away, the consumer is paying for two pair and getting one, so Toms can give a pair away at no cost to the company, and at a nice profit. Toms has also set up a non-profit wing of the company, not for the manufacturing of the shoes, but for soliciting and managing volunteers to distribute the shoes to the needy. The giveaway shoes are paid for by the consumer and distributed to the needy by volunteers. Toms Shoes is a for-profit business, so it seems to me that the distribution of the shoes should be paid for out of Toms’ pocket, not by the donated time of volunteers.

It’s a marketing thing, really. He’s doing some good, helping people, making a nice profit, and making consumers feel good by knowing they are helping shoeless children, and in turn doing some serious brand building. It is a win-win situation for everyone as long as the consumer doesn’t mind footing the bill for what Toms markets to be their own generosity. Don’t get me wrong, I have no problem with a business making a profit at all, and donating goods or services to the needy is absolutely a good thing, but Toms should acknowledge their consumers more directly as partners in their business model and in their generosity, rather than taking the sole credit for the giving. Blake does refer to himself as the Chief Shoe Giver, but it’s Toms’ consumers who are making the sacrifice out of their wallets, not him.

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6 comments so far. Leave a comment.

  1. TerryR

    wrote on April 14, 2010 at 9:18 am

    “Some savvy entrepreneurs are now realizing that harnessing the power of doing good can make for a nice profit, an undeniably positive brand image, a loyal customer base, unlimited PR opportunities, and last but not least, charity.” … In this “employers’ market,” it bears mentioning that you left out the part about these enterprises being sought as great workplaces by employees who want to do more than just have a job that pays the bills.

    I tried working in a place where I felt that the service we were providing to our customers was really helping them. After six years, I realized that swallowing that bit of bitter Kool-aide didn’t fit my taste afterall.

    I too, understand that companies must make a profit. But, the spin some of them use to make themselves seem more altruistic than they are just turns me off!

  2. Cheryl Andonian aka Momblebee

    wrote on April 14, 2010 at 10:06 am

    Terry,
    Charity should be for charity’s sake. I think it’s so easy for most people to jump on the Tom’s bandwagon because yes, children ARE getting the shoes they so desperately need. This fact makes criticizing Toms difficult. But if charity really were the prime goal, then the company would be sacrificing something for the sake of charity, not profiting off of the charity of their customers. It’s a bit of an oxymoron.
    Thanks for your input.
    Cheryl

  3. Doug McLaulin

    wrote on May 18, 2010 at 11:12 pm

    It seems that it is a lose lose situation from your point of view… Yes, TOMS makes quite a bit of money (I believe around $19 million per year), but is it possible they are the new breed of business?

    Capitalism is the greatest system in the world. Consumers have the right to support whatever brand they like by simply purchasing certain products. You could argue that any fortune 500’s “social responsibility” campaign is all a ploy at seeming to not be all about the bottom line.

    Muhammad Yunus would classify this as a social business and the future of assisting others around the world. The argument could be made that the margins being made will ensure longevity for the company. At the end of the day, would you rather see TOMS w/ a social purpose make it or a Nike?

  4. Cheryl Andonian aka Momblebee

    wrote on May 19, 2010 at 7:28 am

    Doug,
    Nowhere do I say this is a lose, lose situation. I actually say that it is a win for Toms, a win for the needy recipients of the shoes, but a lose for the consumer. I absolutely have no problem with a business being profitable. That’s not the point of my post at all.

    I am a business person myself and certainly understand the basic principle that for a business to succeed, it needs to be profitable. What I am saying is that Toms takes full credit for the “one for one” concept, and Blake refers to himself as the “chief shoe giver.” He is not giving anything away. His consumers are. They pay for two pairs of low quality shoes and get one. Toms just simply distributes the second pair to someone who needs it. He has a non-profit organization set up to handle that end with unpaid volunteers. He has a model that guarantees each sale will be for two pairs of highly profitable shoes, not one and that they will be distributed to the needy for free, while he profits off the sale of the “giveaway” pair. It’s just that their whole market positioning is all about their generosity, when it appears that it’s really the generosity of their consumers that is driving their profits. It is a free market and yes, people can choose whatever brand they want to buy. But I think Toms is milking the whole generosity thing to tug at the heart strings of the people who are actually the generous party by buying his inferior shoes at a high price. Blake knows it’s hard to say no when the story sounds so worthy. Personally, I’d rather give directly to a worthy organization than end up paying twice what I should for a low end product, but that’s just me.

    And in answer to your last question, I would actually have to answer Nike on that. NIke is a huge company that directly employs 32,8000 people (a great thing in this economy), supports manufactures globally that employ 800,000 people (good for the global economy), makes a superior product and sells it a a fair market price (good for the consumer), and has established a non-profit foundation that supports many causes throughout the world. (read more about that here: http://www.nikefoundation.com/index.html) The difference is that Nike’s main marketing is focused on their product, not their good deeds. So yes, given a choice, I would rather see Nike succeed because their size and financial position could have a much larger impact on the greater good while producing great product, than a small company like Toms could while producing cheap product and selling it at inflated prices.

  5. Katie R

    wrote on August 17, 2010 at 6:14 pm

    Interesting article… you share many of the thoughts I and some of my friends have had. Do you know the type of shoes TOMS gives away? Their videos and pictures lead consumers to believe that they are very simliar to the kind they themselves buy, yet I’ve heard in reality TOMS may be giving out a much cheaper type of shoes – these yellow plascticy ones. Do you know anything about this?

  6. Cheryl Andonian aka Momblebee

    wrote on August 18, 2010 at 5:12 am

    Katie,
    I really don’t know… I haven’t heard anything about that. It appears from the video that the shoes they are supplying to the needy are the same shoes that they are selling to consumers. Their marketing materials suggest the same.

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