TOMS Shoes may be the quintessential Millennial company. Granted, it’s not a Silicon Valley app maker, but it hits all the other Generation Y sweet spots:
Hip, young CEO? Check.
Participatory, social media-driven marketing? Check.
A conspicuous focus on social responsibility? Big check.
It’s the latter point that has driven the company’s success. TOMS Shoes’ social element isn’t just window dressing, it’s the heart of the business and brand. Launched in 2006 by a 29 year-old serial entrepreneur and former reality show contestant named Blake Mycoskie, the company rose to fame by giving away one pair of shoes to poor children for every pair it sold, quickly becoming the toast of both the charity and business worlds. Not only were its lightweight canvas shoes a hit among consumers – including plenty of celebrities – its “buy one-give one” business model garnered endless accolades in the press, and praise from everyone from Bill Gates to Bill Clinton.
The idealistic branding and elegant simplicity of its model proved irresistible to Millennials, whom the company actively courted through campus clubs, social media campaigns, and interactive events. In less than a decade, it had grown into an iconic brand worth around $625 million, inspiring other companies to apply its buy one-give one model to everything from soap to toothbrushes. And it had given away over 45 million pairs of shoes.
But its social focus would prove to be a double-edged sword.
Google “TOMS Shoes” today and you’re more likely to see it described as a cautionary tale than a role model for would-be social entrepreneurs. Countless analysts have questioned its impact, and some have accused it of “monetizing white guilt” – even labeling it the “worst charity in development.” The backlash has led the company to recalibrate its approach, and forced its founder to do damage control. Where did TOMS – and the hybrid business/charity model it innovated – go wrong?
TOMS’ first mistake was to base its intervention on little more than its founder’s whim, simply because it sounded helpful. Mycoskie dreamed up the buy one-give one approach while vacationing in Argentina, where he was struck by the popularity of the country’s traditional lightweight canvas shoes – and by the fact that poor children went shoeless, while charities didn’t have enough donated shoes to serve them. He never realized that the poor actually have ample access to inexpensive shoes in most regions, where the families that are too poor to afford them tend to have far more pressing needs than footwear. Further, the stylish shoes that TOMS distributes are far more suitable for Buenos Aires or Los Angeles than for harsher climates and terrains – many recipients reportedly wish for sturdier options. Meanwhile, even the problems that shoes ostensibly address – like hookworms – could be solved more effectively by interventions like improved sanitation.
Many of TOMS’ donations go to children who already own shoes, or find their way into the hands of people who simply sell them. Since producing and distributing millions of foreign-made shoes is a vastly complicated and inefficient proposition, many analysts believe TOMS could have gotten far more bang for the buck by focusing on the deeper causes of poverty.
Yet the company hasn’t earned the ire of development professionals simply by falling short of optimal impact – a sin of which every organization is guilty. According to many critics, TOMS’ approach can actually be harmful to the communities it serves, undercutting local shoe retailers by flooding the market with free products, while fostering dependency among recipients. They quote studies on the negative impact of clothes donations on Africa’s apparel industry, which have been blamed for approximately 40% of its decline in production and 50% of its decline in employment.
To be fair, one recent study on TOMS suggests that its actual negative impact on local markets is small in the short term, though questions remain about the longer-term consequences. And the company has responded to criticism by making good-faith efforts to improve its model, sourcing more shoes from local producers and giving away a slate of more useful products alongside its shoes – from eyeglasses to safe birth kits. Yet the buy one-give one brand remains the cornerstone of TOMS’ marketing. It seems that the company isn’t confident that Millennials would buy high-priced shoes that reportedly “hurt [their] feet, cannot be worn in the rain or cold, and fall apart within weeks” without the emotional payoff of knowing the poor also get a pair.
Millennials’ affinity for social enterprise is inspiring, as is their desire to make a difference through their purchases. But if they hope to actually transform business and change the world, they’ll need to focus less on the feel-good branding of the companies they patronize, and more on their overall impact. There are countless enterprises that mobilize consumer behavior to help the poor – without the inefficiencies and market distortions of TOMS’ approach.
Take Warby Parker, another Millennial favorite: For every pair of glasses it sells, it sends money for another pair to a non-profit partner, which trains local entrepreneurs in low-income countries to start their own businesses selling the glasses at affordable prices. The result is equivalent to TOMS’ buy one-give one model, but instead of reducing the poor to passive recipients of charity, this approach helps them to help themselves. Meed, a mobile financial services startup, is applying a similarly innovative model to banking. Its partner banks agree to send 50% of the credit interest they earn from Meed users back to the member community. So the financial activity of members in more affluent countries contributes to a growing pool of interest income that’s shared among the Meed community, providing a valuable income stream for members in low-income countries.
As Mycoskie put it when describing his company’s rapid rise, “TOMS was more than just a shoe. It was a story. And the buyer loved the story as much as the shoe.” As awareness grows of the impact and drawbacks of different social enterprise models, consumers – including Millennials – will likely come to appreciate the difference between a good story and a good business. Though this might be bad news for some companies, it will be good news for the poor communities they serve.