NEW YORK, United States — Many fashion brands have a social component today, whether it's Bombas giving out socks for every pair purchased or Everlane donating proceeds from its 100% Human collection to civil rights organisations.
When Toms Shoes launched in 2006, though, the concept was relatively untested. Founded by Blake Mycoskie
, Toms makes a slip-on canvas shoe that was an updated version of the classic alpargata slipper silhouette. From the start, the company operated under a one-for-one model, where Toms would send shoes to impoverished communities for every pair sold.
The combination of fashion and charity proved irresistible to consumers — for a while. By 2013, Toms had donated 10 million pairs of shoes and reportedly generated $250 million in annual sales. And though some critics labeled the donations as a marketing ploy, Mycoskie and his company received plenty of accolades, frequently featured on lists of innovative brands.
But the momentum proved impossible to sustain. Consumers tired of Toms’ signature style, and the buy-one-get-one campaign lost its novelty. Over the summer, S&P Global Ratings downgraded its credit rating, citing “sales declines, eroding liquidity … and the company’s continued weak operating performance.”
In November, Toms said it was abandoning its one-for-one model and would allocate one-third of net profits to charity.
Last week, a group of creditors, Jefferies Financial Group, Nexus Capital Management and Brookfield Asset Management, seized control of the business in an out-of-court deal, avoiding default on its loans. In an email sent to employees, Chief Executive Jim Alling said the move was “the best path forward for our company.” It’s unclear if Mycoskie, who stepped down as chief executive in 2015 but remains the face of Toms, will stay on.
Toms declined to comment and Mycoskie did not respond to requests for comment.
Toms’ rise and fall serves as a cautionary tale for other brands that hit it big with a hero product out of the gate. Within the Toms story are lessons about how to build on early success, from keeping product and messaging fresh to finding the right retail strategy.
Don’t lean on a hero product for too long
Mycoskie was a serial entrepreneur (and appeared on “The Amazing Race” in 2002) before he started Toms. The idea for the shoe came to him during a trip to Argentina, where he noticed the alpargata silhouette was popular with locals.
Toms' shoes were initially rejected by a slew of retailers before the California-based American Rag store agreed to stock them. A writeup in The Los Angeles Times boosted the brand's profile, and Mycoskie starred in a Vogue photoshoot in 2006. The brand was picked up by nationwide retailers like Macy's, Neiman Marcus and Bloomingdales, and at its peak, it was stocked everywhere from Barneys to Whole Foods.
The slipper appealed to consumers because they were comfortable and the design was universal — “few shoe styles have the fashion flexibility to be worn by both Anne Hathaway and Ozzy Osborne,” as Bloomberg put it. They sold at an affordable price point (about $55) and came in a variety of colours and patterns. In marketing, the charitable component pitched customers on the idea that they were helping the needy while they shopped.
The brand’s image was always tied closely to that first shoe; Toms expanded beyond footwear only in 2011, with eyeglasses, and debuted a sister coffee company, Toms Roasting Co
. in 2014.
It didn’t help that Toms’ hero product was easy to knock off. The company took a hit when footwear giant Skechers introduced a similar shoe, BOBS, which also mimicked Toms’ charity concept.
“Everyone knew Toms for their slipper ... they became a one-hit-wonder, which unfortunately meant it became a fad,” said Gabriella Santaniello, founder of A-line Partners, a retail research company.
They became a one-hit-wonder, which unfortunately meant it became a fad.
Plenty of direct-to-consumer startups bank on a singular hero product to appeal to customers, including shoe brands like Allbirds and Rothy's that have had similar success. Those brands and others closely identified with one product — from Away's carry-on suitcase to Untuckit's button-down shirts — should be thinking about diversifying well before their hero starts to fade.
Toms did branch out, debuted other shoe styles, including women’s wedges and boots, but the products “did not quite resonate with customers as strongly as other classic shoes, and the branding wasn’t particularly durable,” Santaniello said.
Attempts to enter new categories also flopped. Warby Parker beat Toms to market with direct-to-consumer eyewear and sold its glasses at a lower price point.
“When we all saw what Toms was doing, we thought they could expand it into more categories and I wish they would have done it sooner," said Ari Bloom, founder of A2B Ventures.
Don’t let the message get stale
While Toms one-for-one program helped put it on the map, the idea was quickly adopted by many other companies. The brand failed to update its messaging to stay in front of competitors, eventually fading into a crowded market of brands touting their charitable missions. Buy-one-give-one eyewear looked dated in 2011, especially when Warby Parker had launched its own charitable programme the previous year.
“Cause-based businesses were an opportunity at the time, but now it seems like everyone is doing that in order to be market-friendly to millennials or Gen Z,” said Syama Meagher, chief retail strategist at Scaling Retail. “If you don’t continuously update your brand messaging, you will age.”
If you don't continuously update your brand messaging, you will age.
Santaniello noted that in a market as competitive as footwear, Toms needed to be updating its offering beyond style and branding. Footwear giants like Nike and Adidas maintain giant research budgets to ensure a full pipeline of new items. But even Allbirds quickly rolled out shoes made from a new material after finding quick success with wool runners.
“To escape the realm of a fad, there needs to be innovation ... to show customers you are innovative,” Santaniello said. “Otherwise consumer perception won’t stick."
Don’t rely too much on wholesale
In 2012, Toms opened its first store, in Los Angeles. The company eventually added eight more locations, outfitted with coffee shops, juice counters and other attractions.
The bulk of sales always came from wholesale, however. Those initial deals with department stores helped Toms gain visibility. But it also allowed the brand to be overtaken by competitors deploying a direct-to-consumer model that allowed for better margins and faster innovation.
The stores were a step in the right direction, but could have come two or three years earlier, Bloom said.
Pursuing direct retail too aggressively also has its pitfalls, such as when sales fail to grow fast enough to cover the cost of opening and operating stores. Australian shoe company Shoes of Prey's retail experiment struggled so badly that the brand closed last year.
When you're doing both wholesale and retail stores, you hit a point in the market where you are competing against yourself.
Balancing the two sales channels can also be tricky.
“When you’re doing both wholesale and retail stores, you hit a point in the market where you are competing against yourself,” said Santaniello. “Wholesalers try to expand you when you’re hot, but then you end up paying mark-down money and it’s tough to make a business profitable.”
Don’t give up hope
Toms may never return to its status as the “it” shoes. But some retail experts said the brand could mount a comeback, and that handing the company over to creditors, rather than filing for bankruptcy, was a good start.
Toms has received a $35 million investment from its new owners, according to Reuters. The creditor deal also helped keep the brand's financial difficulties out of the consumer eye.
“Consumer visibility is everything today and creditor takeover is not something customers are familiar with,” Meagher said. “We’re seeing big flashy headlines coming out about Forever 21 and Barneys going bankrupt, which seems like a big nasty thing, but Toms has been able to escape the image of troubles for now.”
Meagher believes Toms could resuscitate itself by pursuing a smarter wholesale strategy.
Ugg boots went through a similar boom-and-bust cycle in the 2000s, falling victim to overexposure. Deckers, which now owns the brand, tightened the brand's wholesale distribution network and has seen sales rise.
While Tom’s initially courted high-end department stores, the brand has since become more mass-market; it’s currently selling in 1,700 doors. Leaning into this transition could help win new customers.
“I think wholesale is still a good move here because everyone is entertaining the model, as it’s an important one to have an impact on a wider audience,” she said. “They could easily cut their price and become mass market for Walmart or Sears and reach Middle America. If they shift and revise the brand, Toms could easily find a new home in a mass market.”
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