I told my colleague the other day that the economic impact of TOMS’ “One for One®” policy could make for an interesting article; I swore I would not make the title a bad pun - oh well, I lied.
TOMS has been getting a lot of praise for its charitable policy where they give away one pair of shoes to children in need for every pair of shoes they sell. It’s a noble cause, and perhaps even makes you feel a bit better about spending a week’s salary on shoes (“What do you mean I already have 13 pairs? It is charity!”).
Whether Blake Mycoskie, reality TV star and the founder of TOMS, intended to help out children in need or if he wanted to capitalize on consumer’s conscience by giving the shoes an enormous mark-up while being branded as charity - we will most likely never know. Regardless, he succeeded at one of them; the other one, not so much.
Let’s briefly talk about the one he succeeded with first:
Simplifying numbers and a lot of variables, the average cost of production turns out to be between $3.50 - $5; the average shoe sells for approximately $60. As such, even after producing two pairs, the profit made on each pair of shoes is on average $50. With a profit margin that large, it is no wonder that the company was valued at $625 million in 2014 when Bail Capital acquired 50% of TOMS.
A survey found that “TOMS’ ‘One For One’ movement has an influence on 58% of the participants purchasing decision,” and given that their whole brand is built upon the One for One premise, that number does not seem very unreasonable.
But greed is good they say; isn’t all of this justified since they help children in need with shoes?
Not necessarily. Is really the most optimal way to help starving children to give them shoes? The shoes are appreciated, do not get me wrong. A study found that 77% of children in El Salvador who got a pair of TOMS used the shoes at least three times a day. What’s a bit more awkward, however, is that the shoes had close to no real impact on the children's lives.
It is safe to say that spending the money on mosquito nets, electricity, and water, would be exceedingly more useful; but I’m here in the office doing nothing to help children in need except for the occasional charitable donation. At least TOMS are doing something positive and actually making an effort to improve the lives of thousands.
Yeah, not so fast. Here’s a newsflash for you: African countries and its villages has shoe shops. Donating shoes makes it so that shoe vendors goes out of business (It’s hard to compete with a price of $0), which leads to the villages being less likely to be able to be self-sustained due to the loss in jobs and production. It is estimated used-clothing donations accounts for approximately 40% of the decrease in production and 50% of the reduced employment in the garment industry in Africa.
Consumer spending also decreases as a whole, and the spending which otherwise would’ve been there to stimulate the economy is no longer there. Despite what the TOMS and Unicef ads may make you think through their use of “poverty porn,” countries like Uganda, South Africa, and Nigeria are civilized countries with sophisticated infrastructure. The only thing sending shoes is going to do is to decrease the spending in the shoe market.
Donations are generally a good thing, but the One for One policy is one that isn’t helping anyone but TOMS’ profits. If they truly wanted to help, there is a very simple solution: take the money they would’ve spent manufacturing and sending shoes, and then donate/invest in necessities or markets which will trigger growth and self-sustainability.
Think twice before buying TOMS solely because of their One for One policy. If you like their shoes, then by all means, buy them. If you want to be charitable, then donate the money instead. There’s a smart and a dumb way to do charity. Don’t be dumb.
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McDonald, Patrick Range. "Is Blake Mycoskie of TOMS an Evangelical?"L.A. Weekly. LA Weekly, LP, 28 July 2011. Web. 09 May 2016.