Business ethics case study TOMS and 'one for one': implementing CSR...

Business ethics

case study

TOMS and 'one for one': implementing CSR one step at a time

Visible on the shoe racks of high street stores across the globe, on first glance, TOMS look like any other canvas slip-on shoe; yet behind the Argentinian alpargata styled summer shoe lies much more than comfortable and fashionable footwear. Since its origins in 2006, TOMS has developed a 'one-for-one' philosophy; donating one pair of shoes to a person in need for every purchase made. And the company's commitment does not step there. Having more recently branched out into TOMS Eyewear, TOMS Bags, and TOMS Roasting Co. Coffee, the company is considered as a key case for revolutionizing philanthropic giving, putting CSR at the heart of its business model focused on social enterprise. Yet as TOMS and its beneficiaries reap economic and social rewards, are the altruistic efforts of TOMS sustainable in the long-term? While TOMS' founder, Blake Mycoskie, takes pride in the company for selling 'a lifestyle, not just a pair of shoes', is this really a case of 'ethics pays', or is TOMS merely representative of a short-term business 'fad' in corporate giving?

Compassion for fashion?

The footwear market is booming. Estimated at US$79,858 million in 2017, current market growth is being attributed to a focus on 'athleisure'the use of athletic footwear in non-sporting activity. Capitalizing on this trend is Californian brand 'TOMS', with its casual style of slip-ons, sandals, flip flops, boots, and wedges, many of which are made with sustainable and vegan materials including natural hemp, organic cotton, and recycled polyester. Aside from embracing the trend towards footwear that reflects consumers' increasingly healthy and sustainable lifestyles, TOMS' commitment to social responsibility cuts right through to the heart of the business. Where footwear companies have come under fire for shifting production to low-cost developing countries, or adopting environmentally questionable sourcing techniques regarding leather and plastics, or even charging eye-watering premiums for the most recent fashions, TOMS' unique 'one-for-one' philosophy sees the business supporting a range of causes, including poverty, water scarcity, health, and hygiene through transaction-based giving.

TOMS' story began in 2006, when founder Blake Mycoskie visited Argentina to find a generation of children growing up without shoes. Not only were these children suffering poor hygiene as a result of their lack of shoes, but they were also exposed to serious health concerns. Conditions such as tetanus and podoconiosis were particularly prevalent, as bacteria on the ground entered into children's bodies through open cuts and wounds on their bare feet. The lack of shoes also had a knock-on effect on children's educational abilities, with many being turned away from schools where shoes were mandatory for attendance. What struck Mycoskie was that the majority of those locals who were wearing shoes were wearing alpargata canvas shoes that were made locally and cheaply. Surely there had to be a way to tackle this footwear problem?

Mycoskie's initial response was to set up a shoe-based charity to donate money to supporting these children, but soon he realized that this idea was too short-term in its aspirations. How could he develop a business that supported these children in need on a more sustainable business? It was here that the idea for a social enterprise was born for 'Tomorrow's shoes', which soon became known as 'TOMS.' From modest beginnings in the dusty Argentinian backstreets where Mycoskie sourced his first 250 alpargata canvas shoes, to the distribution hub he set up in his Los Angeles apartment to bring these shoes to US consumers, TOMS is now a privately owned global brand valued at US$625 million with 550 employees. Today, the average retail price for a pair of TOMS is around US$55, with the majority of revenues coming through direct to consumer ecommerce, as well as wholesale channels. The brand is also currently building its global presence in bricks and mortar standalone stores that offer a community feel for 'people to exchange ideas' while shopping for shoes, bags, and other accessories. Mycoskie states, 'When we started, no one was doing "one for one", and a lot people thought we were crazy. Many of my business colleagues thought we would not make money and we would never be sustainable. Now there are over 100 one-for-one companies.'

Against an impressive revenue backdrop, TOMS has given away over 75 million pairs of new shoes to children in need across 70 countries since 2016 through its 'one-for-one' giving model. Working with giving partners on the ground, including civil society organizations such as Africare and Save the Children, TOMS' mechanic works by identifying areas of need among children in developing countries and placing orders that are customized to ensure the right size and style for the recipient. It is not only the cost of the shoe that is borne by TOMS, but also related costs for transport and distribution, with a pair of shoes reaching a recipient approximately six months from the initial purchase. In addition to its work with shoes, TOMS has developed its model further, launching TOMS Eyewear, TOMS Bags, and most recently, TOMS Roasting Co. Coffee (see Table10.5). The business also recently launched the 'Start Something That Matters' social entrepreneurship fund to support new social enterprises to grow and flourish.

As a social enterprise, a business created to further a social purpose as we have defined earlier, TOMS reinvests its profits in causes that support the environmental and social needs of people in developing countries. This means that without shareholders to support, TOMS has absolute freedom to act in the interest of its core stakeholders: employees, customers, and beneficiaries. What is particularly impressive is that TOMS does not invest in any advertising, focusing instead on buildingbrand engagement through generating word of mouth and free publicity via social media and celebrity endorsements. The business also runs an annual 'without shoes' campaign, encouraging people to walk around in bare feet to draw attention to the issues faced by many in the developing world, even agreeing to give away a pair of free shoes for everyone who posts a picture of their without-shoes activity on Instagram.

Perpetuating poverty?

Despite being heralded as a success story of social responsibility, TOMS' business model has been critiqued in recent years on social and economic grounds. Focusing first on the social critique, in the early days, TOMS sourced its raw materials and produced shoes locally in Argentina. Yet, as the business scaled its activity, manufacturing moved to China. To some, this focus on cheap, mass-production marked a departure away from the brand's true values. While TOMS has defended its decision, in 2013 the business responded to these concerns, committing to producing one third of its 'Giving Shoes' in local regions of Ethiopia, India, Haiti, and Kenya to encourage more sustainable futures by creating work for local communities. In making this move, the business also benefits from the decreased transportation costs, with a halo effect for the environment. Yet with the entire model of TOMS being called into question by social and cultural commentators such as Slavoj iek,15 the impact of TOMS on development in local economies remains a clear concern for many. To what extent is TOMS genuinely driving a sustainable future for the beneficiaries it supports? Critics see TOMS as a business that encourages beneficiaries to become dependent on gifts, perpetuating stereotypes of developing country stakeholders as poor, needy, and with little agency. Therein, TOMS is 'undermining local communities', 'treating rather than curing social symptoms', and encouraging 'self-congratulatory smugness'.

Turning to economic concerns, despite TOMS' diversified product portfolio, the majority of TOMS revenue is premised upon its core alpargata range, leading some to question the viability of the business should this line fall out of fashion or become a passing 'fad.' Focusing more specifically on the economic impact of TOMS on the ground in El Salvadora TOMS focus area for shoe givingrecent research has suggested that households who receive free pairs of shoes may not actually need them, and therefore buy fewer shoes from local vendors, depressing economic activity in the areas that need it most. These deeper challenges suggest issues of inequality within contemporary forms of philanthropy and question the long-term sustainability of initiatives such as TOMS' 'one-for-one' philosophy. We might agree, yet is doing something better than nothing?

QUESTIONS

1.What are the main CSR issues facing the apparel and footwear industry? How does the TOMS 'one-for-one' model address these issues?

2.Focusing on recent news, take a look at what three or four CSOs have been saying about the TOMS business model. Do they broadly align with the 'compassion for fashion' argument, or do they see TOMS as 'perpetuating poverty'?

3.Who are the main stakeholders of TOMS and how has the firm prioritized them? Is it right to prioritize them in this way?

4.What are the potential risks and rewards of TOMS' approach to philanthropic giving? How sustainable do you believe this business model to be in the long term?

5.How could TOMS enhance its social licence to operate? Consider the ethical challenges of social enterprises listed in this chapter in your response to this question.