Even the most groundbreaking companies with a cause need to keep evolving to stay on their feet. TOMS, the shoe company that pioneered a mix of sales and philanthropy, is now under new ownership.
The company launched in 2006 with an uplifting promise–“With every pair you purchase, TOMS will give a pair of new shoes to a child in need"–but struggled recently in the face of price competition and declining novelty of the one-for-one concept.
TOMS owners, including founder Blake Mycoskie, have agreed to transfer the company’s ownership over to its creditors, according to a letter sent to employees last month by TOMS CEO Jim Alling. The group of creditors includes Jefferies Financial Group, Nexus Capital Management, and Brookfield Asset Management, who seized control of the company through an out-of-court deal.
Multiple credit ratings agencies had warned TOMS that they would not be able to repay their $300 million loan due next year without renegotiation, according to Reuters. In exchange for the ownership acquisition, the creditors will provide debt relief to the company as pledging to invest $35 million to help turn the company around.
The Los Angeles-based business was one of the first of its kind. Founded by former Amazing Race contestant Mycoskie, TOMS drew its brand name from his initial concept, “Shoes for Tomorrow Project.” The idea behind TOMS stemmed from a trip Mycoskie took to Argentina where he noticed many shoeless children as well as a potential solution in alpargatas, the most popular shoe design among locals. After launching with a batch of just 250 shoes, by the time of the company’s 2019 impact report, TOMS said that the company has donated more than 95 million shoes as of November 2019 and hopes to reach the 100 million mark sometime in 2020.
In 2014, private equity firm Bain Capital LLC acquired a 50% stake in the company from Mycoskie in a deal that valued the company at about $625 million, with Mycoskie retaining rest of the equity. It is unclear at this point what role Mycoskie might continue to play at the company.
While the one-for-one model promoted humanitarianism and benevolence, the company has suffered in recent years as other companies began to imitate it. Popular shoe retailer Skechers launched BOBS back in 2010, a shoe line that began with a virtually identical business model as TOMS. As more companies continue to lower their prices and follow a similar model, the originality of the premise tended to wear off. TOMS transitioned from its one-for-one model in November, now sending a third of its profits to a fund that finances philanthropic and social causes. TOMS says they have dedicated $6.5 million to what they call “impact grants” to their 205 giving company partners.
“Maybe it’s time to evolve a little bit,” TOMS Chief Giving Officer Amy Smith said in the report. “Maybe it’s time to do more than just our one-for-one giving.”
TOMS has indeed done more than sell and donate shoes since their inception, including the launch of an eyewear line in 2011. With a similar format, TOMS has helped restore eyesight for over 400,000 people in 13 countries by donating prescription glasses and providing funding for medical treatment. In 2014, TOMS also launched a sister coffee company, TOMS Roasting, that helps provide safe drinking water to communities where their coffee beans are grown.
Even though TOMS did its best to branch out, the separate projects did not have the same success as the classic shoe line. According to a Business of Fashion report, the upstart eyewear company Warby Parker won the race with TOMS for direct-to-consumer eyewear with lower prices while using a similar charitable business model. Warby Parker partners with the nonprofit Vision Spring to donate glasses abroad.
Retail experts suggest that handing the company over to creditors was a “good start,” according to the Business of Fashion article. Some believe that this will push TOMS to use a stronger wholesale strategy to revive the company. Currently, TOMS operates nine retail stores nationwide but partnering with major retail chains like Walmart or Target could help its products reach a wider audience in a mass market.
With its new financial structure, the management of TOMS hopes it will have the resources to make that turnaround happen. Said Alling in his letter to employees: “Combined with an enhanced capital structure, this funding will enable TOMS to further invest in our promising growth areas and continue our commitment to giving.”
Evan Hong, a reporting intern at From Day One, is a journalism student from Vadnais Heights, Minn., who currently studies at the University of Wisconsin-Eau Claire. He works as the sports director at TV10, the university’s campus TV station