I’ve had bits and pieces of a rant about TOMS shoes rolling around in my head for some time, but the stars aligned tonight perfectly, and I decided it was time. So, before I commence ranting, a couple of disclaimers. First, this is not meant to offend, attack, or otherwise speak poorly of anyone who has ever purchased a pair of TOMS. Having studied it for just a semester, I’ve already found that helping people improve their economic situation is a much more complicated task than I ever believed possible. However, I suspect I have a number of friends are currently purchasing or are contemplating purchasing a pair. This post will hopefully shed some light on the harsh realities of the “buy one give one” (BOGO) model. Disclaimer number two is that much of the information contained herein has been sourced from a number of other blogs, youtube videos, etc. I will cite those as much as possible.
Ok, commence rant. TOMS shoes burst on the scene in 2006 as “the new hotness” of the business/philanthropy world. The amalgamation of a for-profit business with nonprofit-like tendencies seemed to defy classification at the time. The idea that the simple act of buying a pair of shoes could directly help a child in need was compelling, and the company quickly grew due to press coverage from such sources at the LA Times and Vogue. College campuses were a prime target for the business, filled with young, trendy would-be activists just waiting for a way to stylishly help young Argentinian children avoid hookworm. Finally, a company seemed to have the right idea about how to be not only socially-conscious…but socially-active. Soon alpargatas-style shoes with a TOMS tag began to fill college campuses in a way that only Ugg-lovers could understand. I had my doubts about TOMS from the beginning, and not just because I thought they were painfully ugly. So, I did some reading…forgot about it…remembered a year later…did more reading…forgot about it…and so the cycle continued. However, I recently took a class focused on studying the burgeoning field of social enterprise where business and charity collide. I also found myself teaching a class on nonprofit management, which included a healthy dose of ethics. Upon asking my class to identify a socially responsible company, TOMS topped their collective lists. So, I took up my study again, put TOMS under a microscope of economic theory and pseudo program evaluation, and found that the fairy-tale story, sadly, does not add up.
Question #1: how much does it cost to make two pairs of shoes, ship one pair to the U.S., and another to Argentina? If I had to venture a guess, it wouldn’t be $44…the cost of the cheapest pair of shoes TOMS offers. I did a little digging, and found Alibaba, a great website for buying products from other countries. On their site, I found some alpargatas-style shoes from China, which is one of three places where TOMS manufactures their shoes. So, after a five minute search, I came upon the “Casual hemp brazil alpargatas” shoes. I considered posting a picture here, but they don’t like their photos taken, and I don’t want a copyright fight. Though not an exact match, they look suspiciously similar to a number of TOMS models. So, how much do these beauties cost? Well, if you buy 500 at a time, the website prices them at 6.5 RMB, which is the Chinese currency Renminbi. When converted, that is roughly $1.06 per pair. Well…that’s awkward.
Wait, you say, that’s just purchase price…what about shipping? Well, let’s pretend our headquarters is in Atlanta…a challenging destination since we’re shipping from China. Alibaba has us covered there as well. Shipping from Ningbo, China to Altanta, Georgia for $150/m3? Check. I’d imagine 500 pairs of shoes wouldn’t take more than 3 cubic meters no matter how poorly packed. So, distribute that $450, and we have…$1.96 per shoe in the U.S. From there, we unpack, sort, repackage, and ship direct to your home. Thankfully (for my sake), TOMS charges you separately for shipping, so I don’t have to include that calculation. The final step is to calculate getting another box of shoes to Argentina to the child who so eagerly awaits. So, back to Alibaba we go, and I found shipping to Argentina. This one is even cheaper than to the U.S., coming up at $30/m3. I assume it’s somewhat costly to get from the port in Argentina to the children, so we’ll pad that with a conservative $5. There are also import dues, but I can’t find anything close to a number on those, so I’m going to eyeball them pretty low (especially given the fact that I can buy Chinese-made beach flip-flops for $10).
So, here we are. The production cost to TOMS for two pairs of shoes being delivered to you and a child in Argentina? Somewhere around $10, given my estimates. I actually assumed TOMS was getting much better discounts than my numbers show as they buy in greater bulk. However, after doing some digging, I stumbled upon a CNBC report in which the cost of a pair of TOMS was stated to be “about $9 per pair” (just after the 19 minute mark). Apparently I should start selling shoes, since in my estimates I’m beating their costs by half.
We’ll go with their number…even though I think it likely too high. TOMS charges $44 (for the cheapest model), and it costs them $18 to get the shoes. Where does the other $26 go? That, my friends, is the $26 question. We have no idea. Why? As TOMS is a privately-owned for-profit company. They are not legally required to tell us anything. I’m sure some of it goes to overhead (paying U.S. employees, website expenses, etc.). However, once again, the CNBC report comes through for us, stating that company is “clearing $17 per sale.” Though that wording is vague, it sounds a lot like net income per sale. Assuming CNBC already factored in interest, taxes, and the like…40% profit margins aren’t bad ($17/$44). This number declines a bit if taxes, interest, and such have not been included. However, of note is the fact that this video is a bit dated…TOMS now selling some models for upwards of $98.
So, question #1 answered…in quite an unsettling fashion. Question #2: how much good does giving shoes away to children for free do? This is another complicated question. Instead of spending another two paragraphs building an argument, I’ll turn to an excellent Youtube video that provides some insight into the question.
This video raises some tough questions. Are free shoes really an effective solution to the problems countries like Argentina face? Does giving free shoes away hurt local retailers who sell shoes? This video would seem to say TOMS is causing more harm than good, and I would tend to agree. It is hard for local retailers to compete with free, and there’s a chance they could be forced to shut down. In addition, there is very little sustainability to this model. If TOMS disappeared tomorrow, either due to economic struggles or blog posts like this, what would come of the Argentinian children?
While I admire the sentiment that led to TOMS shoes, I don’t believe individuals living in the developing world need shoes handed to them, but they could really use jobs. In addition to China, TOMS says some of its shoes are manufactured in Argentina and Ethiopia. This is great. I would love to see TOMS abandon the BOGO model and instead sell their shoes at half price, allowing them to open even more factories in the developing world and provide jobs to those who have none. Instead of giving away a pair of shoes for free, perhaps use the extra money to run public awareness campaigns about the importance of wearing shoes or to pay your factory workers higher wages. Help existing local vendors expand their own retail networks, providing them an incentive to work with you. Perhaps even develop a better model of shoes to sell to Argentinians that are affordable. When that day comes, I might buy a pair of TOMS. In the meantime, I’ll keep my $26 to myself…or perhaps use it to support an organization that seeks real, lasting change in developing nations.
If you would like to read more about this topic, you can visit the website of the creators of the video I used in my post. They have links to a number of blogs that are similar to this. If you’re more scholarly inclined, check out this paper from Garth Frazer at the University of Toronto on the negative impact of clothing donations to the developing world. For the entrepreneurial-minded of you, check out this critique from a couple of months ago by Fast Company.
That said, TOMS has a full impact evaluation forthcoming. We’ll see how it turns out. I could be completely wrong. Perhaps I will buy a pair of TOMS eventually. Time will tell.