Strategic Analysis of TOMS Shoes: Challenges and Opportunities

This case study provides a comprehensive analysis of TOMS Shoes, a company known for its "buy-one, give-one" business model. The report identifies the strategic issues faced by the company, including the long-term viability of its core model. It includes an external analysis using Porter's Five Forces and PESTLE frameworks, assessing the industry landscape and macro-economic factors. A SWOT analysis highlights the company's strengths, weaknesses, opportunities, and threats. The financial analysis, using ratio analysis, interprets the company's performance. Finally, the report offers strategic recommendations to address the identified issues and ensure the organization's continued success and positive impact.

TMOS SHOES

Executive Summary
IN the given case, a report has been prepared on the company TOMS. The business and the
products in which the company deals in has been explained along with the strategy of the
company. The report highlights the main strategic issues which have been faced by the company
off late and what are the possible remedies and the steps which were undertaken by the company.
The effect of the external environment as well as the industry situation has been explained in
detail through the use of Porter’s 5 forces analysis. The report also includes the explanation of
macro-economic variables and the financial analysis of the company using the ratio analysis and
its interpretation. The SWOT analysis explains the visible strengths, weaknesses, opportunities
and threats to the company and finally the recommendation and conclusion has been given
towards the end.

Contents
Contents......................................................................................................................................................3
INTRODUCTION.......................................................................................................................................4
STRATEGIC ISSUE...................................................................................................................................5
EXTERNAL ANALYSIS...........................................................................................................................6
COMPANY SITUATION...........................................................................................................................8
RECOMMENDATIONS...........................................................................................................................11
APPENDIX...............................................................................................................................................13
References.................................................................................................................................................16

INTRODUCTION
Blake Mycoskie, the man behind the foundation of the organization started the entity with
a view to establish a noticeable difference to those children who cannot afford to wear shoes. His
idea was to donate a pair of shoes to the needy as and when he sold one to his customer. His
intent was to help the poor of Argentina from disgrace and ill health arising out of several foot
infections (Alieid, 2016). Henceforth, by the end of the year 2013, the organization had managed
to donate about 100 lakh pairs of shoes in several countries. Thus, the mission of the
organization was not only to provide shoes to the children in the rural areas and suburbs of
Argentina from protection against feet infections but also to build their confidence and augment
community activism. It aimed to raise the living standard of the poor and the needy. Passing
through the challenging phase of recession in the year 2007 with unstoppable increase in
revenues accompanied with a decent increase in its workforce, the company had opened up its
chains at several new locations. It gained adequate appreciation from its customers and gained
popularity for its noble deed. TOMS had expanded also began to develop eyewear products with
its newest line with an intent to treat and cure the needy with eyesight illness.
With its unique mission and vision, the TOMS were able to attract influential investors
and thus, raise funds to fulfill its expansion needs significantly. With the passage of time, the
organization had shown substantial increase in its sales with an accompanying increase in its
workforce (Alexander, 2016). Since, it aimed to earn profit for a charitable cause; it initially had
to face several hardships to establish its foothold in the shoe industry. It had many competitors

from a reputed brand NIKE, to several others non-branded shoe selling shops. Thus, it attracted a
section of those consumers who valued their money for the good purchased.
STRATEGIC ISSUE
Marketing is an important and inherent activity that an organization undertakes to ensure
robustness in its sales. One of its major marketing moves was to advertise the product on social
media and let its consumers express their views on such an open and wide platform instead of
relying on the usual mode of celebrity endorsements. This enhanced the trust of its customers
and also helped in building a base for the clients. The founder was also seen regularly in each of
its advertisements (Arnott, Lizama, & Song, 2017). Such a decision was new yet willfully
accepted by the public. No other brand had come up with this idea to introduce its founder to the
general audience and maintain connection through advertisements whether on televisions or on
social media. The appearance of Blake in advertising its products was simple and friendly to
attract relatedness of its customers, both existing and new. He shared his idea for the product and
the noble cause associated with it. It aimed to provide low cost colorful shoes at affordable
prices. This major move in its marketing activity enabled the organization to witness a major
increase in its sales along with the creation of a loyal customer base. The company had also
opened up sales through online mode to allow its sales grow gradually surpassing geographical
barriers. Thus, the company had undertaken many major steps to allow it to establish a mark in
the society by providing shoes at affordable pricing without compromising on the trend and
quality (Fukukawa & Mock, 2011). It had also tied up with many giving partners to ensure that

its product reached a wide mass with ease. The strategic issue that the company shall be
concerned mostly with would be-
Will the “buy-one, give-one” model work positively for the organization and its investors in the
long run?
EXTERNAL ANALYSIS
SWOT ANALYSIS
Like any other business organization, TMOS Shoes has its own set of strengths and
weaknesses too. Since it works on the principle of “buy one give one” model, it was easy for the
brand to establish its reputation in the industry. With its noble cause, it has attracted a larger
section of the society with a rapid speed and that was way beyond expectation. The company is
also engaged in environmentally friendly activities and seeks to adopt eco-friendly options as
much as possible (Choy, 2018). It takes into account recycled products and used shoe wear to
produce goods at an affordable cost and hence, undertakes a better measure to protect the
environment sustainably. Its major strength apart from its mission lies in the fact that it employs
young as well as inexperienced team members and interns. Where on one hand, this ensures that
the labor cost is cut down; on the other hand it also promotes innovation and cropping up of new
ideas that would allow the brand to undertake exclusivity.
However, this may lead to several weaknesses as well. Under trained or inexperienced
staff may evolve certain problems that may not be fixed unless proper guiding map is provided.
Since, the promotion style as mentioned earlier is restricted to social media only, its sales

certainly gets affected. The brand also deals in selected variety of goods whereas the industry is
pretty wide in variety (Fay & Negangard, 2017).
The industry in which the brand operates ensures options for expansion and growth.
Since, the brand promotes a noble cause; it can produce handbags and similar items as well. Its
unique style of marketing can ensure development of the brand in the industry and make loyal as
well as satisfied clientele.
Along with many exploring opportunities available, there are many threats as well that
can cause damage to the brand both quantitatively and qualitatively. Buyers are highly
demanding and hence, their purchasing power remains high. There are several threats in the
political, economic and social demographics especially in some developed manufacturing
countries (Grenier, 2017).
PESTLE ANALYSIS
The political scenario of the United States is a stable democratic and organized set up.
The policies set up through the NAFTA ensure that foreign trade policies are maintained strong.
The purchasing power of the buyers however highly depends on how weak or strong the
economy of the nation is. The major section of the consumers including the teenagers enjoys
luxurious shopping at affordable pricing. Hence, there is increased income accompanied with a
significant reduction in unemployment (Goldmann, 2016). Foreign buyers are equally attracted
since the exchange rates are lower. Wages are supposedly and gradually showing an upward
trend. Technology is equally showing an up gradation thus, enabling the consumers to enjoy
shopping anytime from anywhere. This enables the retailers to work beyond geographical
barriers and hence, they have begun to perform on global platform as well. TOMS Shoes have

ensured to include in its activities every eco-friendly measure that was possible and applicable
for it to ensure that high quality was maintained at low cost with minimum damage to the
environment. The U.S. government has enforced many relevant acts and laws such as the Labor
law and the Lanham act. Also, there are antitrust laws to ensure that competition remain healthy
in the industry amongst the peers (Heminway, 2017).
PORTERS FIVE FORCES MODEL
Customers have a higher bargaining power the suppliers in this industry. Also the threats
from new entrants and being substituted are comparatively higher in the market than the rest.
Barriers to entry are low and there is not much investment required in terms of both time and
money. Thus, these factors cause the market to face a competitive rivalry that is much more
intense and tough than others (Linden & Freeman, 2017).
Buyers and suppliers are increasing in number to enable their products enter foreign
countries at a low price. Since the consumers are widespread, the suppliers are forced to attain a
global platform to meet their demands and thus expand in due course. After the recession phase,
the purchasing power of the consumers has increased strongly therefore, allowing them to spend
more in the market (Jefferson, 2017).
The aforementioned reasons are major factors that have caused competitive rivalry to
emerge in the respective industry. Several physical stores and online shops have been giving
tough competition to each other to establish its foothold and outperform against the other.

COMPANY SITUATION
The founder of the brand was driven by the idea of how providing shoes to the needy
could help them individually and the economy on the whole. Since the competition from reputed
and expensive brands such as NIKE, ADIDAS, etc., was intense, the brand had to surpass many
hardships and barriers to reach a place where it is today without undertaking any fully fledged
promotional and marketing strategy like its peers. The company undertook several measures to
ensure its noble cause received public notice, its competitors (Sithole, Chandler, Abeysekera, &
Paas, 2017).
FINANCIAL ANALYSIS
The chart below shows its growth considerably:
YEARS PAIRS OF SHOES SOLD INCREASE (%)
2007 50000 500%
2008 110000 120%
2009 230000 109%
2010 700000 204%
2011 1200000 71%
2012 2500000 108%
2013 6000000 140%
The table below shows the revenues of TOM’s shoes and its peers:
BRANDS REVENUES (2013) ($ millions)
TOMS 210

CLARKS 1400
SKECHERS 1854
ADIDAS 19640
NIKE 25280
From the annual report of the company, following ratios can be analyzed from the given
financial data:
 Operating margin has witnessed a reduction by 0.2%
 There has been a noticeable growth in operating profit before special items in the year
2018 since the last financial year 2017
 The company has shown a return on invested capital of 7.5% which has reduced from
906% from the previous financial year (Vieira, O’Dwyer, & Schneider, 2017).
 Gross margin continue to show the similar trend
 Current ratio is adequate at 2.27. this shows that the company holds enough current assets
to pay off its current liabilities
 Solvency ratio has increased by 6%
 Return on equity shows a downtrend whilst the last year at 6.5% (Oberoi, 2018).
INDUSTRY BACKGROUND
The industry in which TMOS shoes operates was a mature one. It had both small and big
companies competing with one another with equal respect and grace on terms of price and
products they offered. Competition arose from domestic as well as foreign organizations. New

entrants faced serious competition and were not easy to survive. Thus, product differentiation
was the need to allow the firms to sustain competition in a healthy fashion. High quality products
selling at affordable prices was the effective strategy that needs to undertake by the company at
large? Since the firms were expanding their sale on the global platform through electronic
commerce, new entrants to the industry could survive and evolve only through reduction in costs.
Investment in plant, equipments and machinery was expensive. To add to this costly scenario is
the advertising campaigns that was undertaken to allow the brand grow in the eyes of the general
public (Raiborn, Butler, & Martin, 2016).
RECOMMENDATIONS
STRATEGIC ISSUE: Will the “buy-one, give-one” model work positively for the organization
and its investors in the long run?
STRATEGIC RECOMMENDATIONS and IT’s JUSTIFICATION: After analyzing the
company and the industry in which it operates, it is clear that though the company is bagged with
several strengths, it also left behind a large space for improvements. The TOMS model one for
one” model consists of several serious flaws that need to be corrected for its betterment. It has
underestimated the definition of poverty to a mere lack of shoes and arising foot infection there
from. The problem of poverty is serious, deeper than its mission and analysis. Hence, it could be
more responsibly active by undertaking several activities other than donation to eradicate poverty
in developing countries. Donating a pair of shoes a short period hack and not a long term plan.
A mere gift of shoes cannot prove to be a helping hand when major section of the girls in the
country refuse to attend schools and other educational institutions because of lack of adequate
menstrual healthcare. This model proved to be a “Band-Aid” instead of a cure to a disease or

wound. This majorly created dependency rather than a solution. Thus, it is advisable for the
organization to look beyond its charity and face the impact of its deeds. It should face the real
problems of poverty and unemployment breeding in the country. It is thus advisable to look
beyond just shoes to define the real sense of poverty.
The advertising campaign the brand has undertaken seems to be far away from the
traditional and usual means. Hence, though it enjoys innovation and connection with the mass
but it loses out on the upfront by not reaching the wide public through missing endorsements on
televisions and other visual media. This has caused its brand to not grow thereby making the
audience less aware about the organization and its fancy product. Hence, it should engage itself
in many traditional modes of marketing techniques as well.
The brand believes in employing young, under trained or inexperienced staff to cut down
on its labor costs. Though this definitely adds to increase in gross margins, it also adversely
affects the quality and techniques in the manufacturing process due to lack of training and
experience. Hence, it should hire trained staff as well to ensure that the young team members
receive proper guidance when they need.
Although the shoes are fancy and latest in trends, the designs are limited and lack variety
and exclusivity. Also, it can be easily copied by other local brands. It would thus lose out on
price and variety of the product it offers. It generally caters to a specific section of the
consumers, especially the teenagers and the youth. The organization should hence focus on
manufacturing increased variety of shoes with time catering to the needs of larger section of the
society.