Strategic Analysis of TOMS

This research provides a strategic analysis of TOMS, including external analysis, company situation, financial analysis, and recommendations.

Running head: STRATEGIC MANAGEMENT
STRATEGIC MANAGEMENT
Name of the Student
Name of the University
Author Note

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Executive Summary
The purpose of this research is to prepare a strategic analysis of TOMS. In order to do the
strategic analysis, the strategic issue has been discussed. The external analysis is done
thereafter, which involves the PESTEL analysis and the Porter Five Forces analysis. The
company situation has also been analysed by going through the financial statements of the
company and determining the several ratios to understand the financial position of the
company. The strengths, weakness, opportunities and the threats are then determined based
on which the required recommendations have been provided. The report ends by stating the
overall performance of the company and what can be done by the company to overcome its
threats and weaknesses.

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Table of Contents
Introduction................................................................................................................................4
Strategic Issue............................................................................................................................4
Background............................................................................................................................4
Products and Services............................................................................................................5
Ethical Practices.....................................................................................................................5
Social Media Adaptability......................................................................................................6
Competitive Advantage..........................................................................................................6
The Issue................................................................................................................................6
External Analysis.......................................................................................................................7
PESTEL Analysis...................................................................................................................7
Porter Five Forces Model.......................................................................................................9
Company Situation...................................................................................................................11
Financial Analysis................................................................................................................11
SWOT Analysis...................................................................................................................11
Conclusion................................................................................................................................12
Recommendations....................................................................................................................13
Appendix..................................................................................................................................14
The Business Concept..........................................................................................................14
Porter Five Forces................................................................................................................14
SWOT Table:.......................................................................................................................14

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References and Bibliography...................................................................................................16

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Introduction
TOMS Vision is the responsibility to provide the children of the impoverished regions
with comfort. The mission of the company is to guarantee shoes to the children throughout
their childhood. It aims at making life more comfortable by ensuring that their products are
breathable, light weighted and soft enough for the children who will be wearing it. The name
of the company has been given as TOMS because Mycoskie established shoes for a Better
Tomorrow. TOMS is comprised of two parts, one is called as the “for profit” and the other is
called as “Friends of Toms”.
The company has undergone several strategic changes recently. The company
experienced a persistent growth even though there was global recession. In 2013, TOMS
matured into an organisation with 400 employees and the revenues increased to $210 million.
The business concept of the social entrepreneurship of the company is to sell the shoes along
with the story behind it. TOM eventually expanded its mission to other social responsibilities
with its growth. The following paragraph discusses about the several strategic actions and
implementations of the company.
Strategic Issue
Background
TOMS shoes was formed by Blake Mycoskie in the year 2006 and it is headquartered
at California. It was among the first of his six start-ups. The idea of making shoes came into
the mind of Mycoskie when he visited Argentina and saw impoverished children who were
walking without shoes were suffering from serious illness. The children were even unable to
attend the school because the schools did not allow students without shoes. The farmers and
even the café goers used to wear a traditional type of shoes termed as the Alpargata. The
Aplargata was originally used by the local peasants of the 14th century. This induced an idea

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in him that providing shoes could be more impactful in the rural areas than providing
medicines and foods. He saw that shoes can protect the children’s feet from infections and
boost up the self confidence of children. He developed and unique strategic idea of providing
shoes to the needy people for each shoes being sold and it helped in the speedy market
penetration of the company. The unique strategy of the company shows that the company is
taking social responsibility goals and today’s customer are more inclined to those companies
that aims in the social and sustainable development.
Products and Services
TOMS previously specialised in the manufacturing and selling of the shoes to the
men, women and children but recently there has been an addition in the product line. The
company is now also involved in the production of eye wears, bags and a coffee company.
The eyewear was launched in the year 2011 and has helped many people in restoring its sight.
One of the key focus areas of the company is the global expansion. The company is not only
focusing on the one kind of shoe that it initially started with and has entered into all types of
shoe segments.
Ethical Practices
This product diversification is also related to the social responsibility goals. The
Company has turned the social responsibility into primary business objective. Toms was a
member of the American Apparel Footwear Association (AAFA) and it was registered with
the Fair Labour Association. The company is now called as a social enterprise and conscious
capitalism by many people. TOMS provide the people with many job opportunities and
educate them on prevention of slavery and human trafficking. The shoes are made in such
regions where the needy children are provided with those shoes. The company is involved in
providing access to the safe and clean water to the needy person, it also helps in safe birth
and provides medical treatment for eyes for free to the person in need. The company has also

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employed the equal number of male and female. It partnered with organisations that were
dedicated to social awareness. TOMS have built relationship with around 75 Giving Partners
that includes Save the Children, U.S. Fund for UNICEF and IMA World Health. It partnered
with Vegan shoes, incorporated recycling of bottles and used soy inks for printing. It raised
awareness about the excessive sewage discharges as well.
Social Media Adaptability
The firm took advantage of the social media in the recent era. It relied on promotion
through social media and word of mouth. It has over 2 million plus subscribers in Facebook
and Twitter. It has a huge social media presence with respect to its competitors. The unique
social approach is specifically directed to the customers through these social media that is
increasing the consumer base and the revenue of the company at large.
Competitive Advantage
The business model is dedicated totally to a socially responsible behaviour. The
advertisements of TOMS showcased the charitable contributions and the story behind the
brand. Mycoskie himself was present in most of the advertisements of the company that
encouraged the customers to feel connected with the TOMS brand personally. The
company’s social message increased the consumer base and repetitive purchases. The
products were trendy and appealing but yet it was basic and comfortable. The “One for One”
and the giving model attracted the customers. The mark up of the company was lower than its
competitors yet it earned a considerable profit.
The Issue
The strategic issue with the company is that it is facing several strategic challenges
related to the supply chain management and the retail market management with the growth in
the business. The company tried to use cheap labour resource for reducing the labour cost.

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The recent expansion and growth of the company predicts that there will be a rise in the cost
of the raw materials and wages and it will comprise 70% of the manufacturing cost by the
end of 2020. The prices of leather rose steadily every year along with the price of rubber.
Wage rates also increased. The question is therefore “Can the company survive the increasing
cost while maintaining its motive of social responsibility?” and “Does the company need to
outsource a part of their operations to the third party?” The short term strategic goal of the
firm is to drive change with the sale of their products and the long term objective is to
achieve global expansion. The following paragraph discusses about the internal and the
external environmental analysis of the company that has been determined with the help of the
strategic analysis tools.
External Analysis
The external analysis can be done by performing the industrial analysis of the
company with respect to the external environment. The strategic tools of the Porter’s Five
Forces model, the macro environment analysis and the industrial profile and attractiveness
can be used in order to determine the overall external environment. The impact of each of the
environmental sector has been assessed as follows:
PESTEL Analysis
Political
1. The country has a strong democratic government.
2. There is a stable political system generally termed as the Federal System.
3. The taxation policy is organized but it is complex.
4. There is a strong prevalence of the foreign trade policies (NAFTA).
5. The company also receives government support for the expansion of the industry that
engages in foreign trade.

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6. The EU imposes quotas on imports of the shoes by the Chinese.
Economic
1. The per capita income is rising.
2. There is also a reduction in the number of people who are unemployed.
3. The low exchange rates also attract the foreign customers in the country (Reinhardt et
al., 2017).
4. The payment of wages is also rising and the increased government spending is
helping in supporting foreign trade.
5. The company has been able to earn profits given the economic condition since its
beginning.
Social
1. The teens in between the age of 13-19 old have almost 42% of their budget on the
fashion merchandise.
2. There are a number of aspiration shoppers who wants to avail luxury handbags at a
cheaper cost.
3. The company has a very loyal customer base. Almost half of the worldwide shoe
production is comprised of leather shoes.
Technological
1. Various social media has emerged in the market because of the technological
innovation and the company is making full use of these social media to market its
products worldwide.
2. There has been an emergence of the e-commerce segment in the market and the
consumers are inclined more towards the online shopping recently.

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3. The company needs technological innovation in the sector of quality assessment of
the leathers as machines cannot study the grains and the lines of stress found on the
leather.
Environmental
1. The country’s geography is extremely diversified.
2. It attracts a number of tourists.
3. The country however faces the toughest challenge with facing the weather condition.
4. There is a huge demand on ‘greener’ products.
Legal
1. There are several underlying cultures and values.
2. Equal treatment of the nationals as well as the foreigners.
3. Protection of the Intellectual Property Rights by implementing strong legal system.
Porter Five Forces Model
Competitive Rivalry: The degree of competitive rivalry is high. Most of the
companies are now expanding their online stores, retail stores and the departmental stores, as
a result of which the companies can also diversify their products into several accessories like
TOMS have done. There are several discount stores also that offer their products to the
customers at a very low price. The money and the resources required to enter into this
industry is not high enough and hence the competitors can easily diversify their products.
Almost all the organisations are now involved with continuous innovations. Any new
innovation by the competitors can reduce the market demand of TOMS.
Bargaining Power of Buyers: The buyers have a high bargaining power. The
products offered by the company are easily substitutable. Although TOMS believe in social

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responsibility and tries to produce the products at a cheaper cost yet the same concepts can be
applied by the other competitors. There can also be an impact on the cost differentiation.The
increase in the price of the product will shift the buyers to the competitors as the switching
cost of the buyer is low. The cost of materials and wages of TOMS was forecasted to increase
between the periods of 2013-2020. The increase in the cost will increase the price of the
product as a result of which the buyer may shift to other competitors providing a better offer.
Bargaining Power of Suppliers: The bargaining power of the suppliers is also low.
There are a large number of alternatives available to the company to acquire raw materials.
The company can easily shift from one vendor to the other vendor depending on the price
quotation provided. The company will accept offer from that vendor only where the cost
incurred by the company will be low and the productivity will also be proper.
Threat of Substitutes: The Company has high threats of substitutes. The top
competitors are Nike, Adidas, Sketchers and Clarks. There is a very competitive price
prevailing in the market in this sector. All the brands are trying to make the best innovation
that is possible and hence there is a huge competition prevailing in the market. Any
tampering with the quality can hamper the goodwill of the company at ease because of the
availability of the close substitutes.
Threat of New Entrants:The industry has earned a huge amount of profit starting
from its inception and has earned a good name within a very less time. It has been seen that
new companies can easily come and go in and from this industry and hence it can be said that
there is a high threat of entry. The attractive profits and the low cost of setup attract the
investors to take risk.

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Company Situation
Financial Analysis
The cost of raw materials like rubber, leather and plastics kept on increasing. The
increasing cost puts an effect on the financials. The number of labour has also increased to
400 in 2013 from 4 in 2016. The number of labour has thus increased hundred times in just
seven years and the revenue with that respect has increased 600 times (Exhibit 1) (Peteraf,
Cooney & Zhang, 2014). The company used cheap labour initially but the increasing
awareness related to the labour outsourcing has also increased the labour cost. This is
reducing the profit margin of the company and can be a serious issue in the future. The
annual growth rate suggests that the revenue was superior in the year 2007 but competition
increased every year. Although, the revenue has increased every year still the growth rate has
shown a significant fall in 2013 (Exhibit 4) (Peteraf, Cooney & Zhang, 2014). The growth
rate shows that the growth rate has fallen from 2007 to 2008. Although there has been
increase in the growth rate in 2009 and 2010 it was not as high as 2007. The company’s
growth rate is fluctuating and mainly following a declining trend. The revenues are increasing
at a decreasing rate.
SWOT Analysis
The strengths
1. The company is active socially and has accepted social responsibility for every task
that it performs.
2. Moreover the company is able to deliver the responsibilities that it mentions. The
philanthropic message of “one for one” of the company helps in attracting many
consumers and increase customer loyalty.
3. The company utilizes the social media platform at its best.

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The weakness
1. The company does not have proper policies to control the cost of operations.
2. The increasing cost is increasing the price of the shoes.
3. The brand awareness is also very low because of its improper and weak advertising
policy in the television and magazines unlike the other brands.
4. TOMS does not use any eminent person for the advertisement purpose.
The company has the opportunity to
1. Increase its brand awareness by getting involved in event sponsorships.
2. The social responsibility goals have created an opportunity for the company to attract
more investments from the big companies.
3. The investments gathered by the company can be used in research and development.
The threats
1. There is an economic decline because of the recession.
2. Online shopping should be more strengthened as people prefer online shopping than
malls.
3. Some other brands are also using the technique of one for one that is used by TOMS
thus increasing the competitions.
4. The operational cost is going on increasing because of the increase in the cost of raw
materials.
Conclusion
From the above analysis it can be concluded that the company TOMS is facing recent
ups and downs and the increasing cost is disrupting the operational efficiency of the
company. The company has a good social image but the competitions are also taking similar

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strategies and are offering the same product at a lesser price for which the company is facing
a threat of competition. Although the company have s good social presence and online
presence yet it is not as spread in the minds of the consumers like its competitors are. Hence
there is a necessity of some financial and strategic changes in the decision making process.
Recommendations
1. Strategic planning other than the one for one is to be implemented. New strategy is to
be planned in order to attract the customers as the competitors are copying the
technique of TOMS.
2. Instead of word of mouth TOMS shoes should focus more on marketing by spending
more on advertising.
3. Better retail chain management and supply chain management is required in order to
reduce the operational costs.
4. Change in the sales techniques to increase the conversion and the turnover.
5. Try to capture the developing areas rather than the developed areas.

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Appendix
The Business Concept
Porter Five Forces
SWOT Table:
Strengths:
1. It is socially very active.
2. It has a philanthropic message.
3. The social responsibilities taken by the
company has helped it in acquiring the
Weakness:
1. The cost of the shoe is high.
2. The brand awareness is very low.
3. Retail chain management.

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customer loyalty.
4. Shoes have both style and variety.
Opportunities:
1. Has partnership with many retailers and
provides various opportunities for both
people as well as other businesses.
2. TOMS uses recycled materials.
3. It is involved with the social responsibility
activities that open many doors for the
company in getting investments from other
companies.
4. The investments gathered by the company
can be utilized for the purpose of further
research and development.
Threats:
1. Recessions are causing economic decline.
2. People are more inclined to online shopping
rather than malls.
3. There are some other brands also who are
adopting the technique of TOMS’ One-for-
One model.

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References and Bibliography
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