What you need to know about Toms shoes
Toms, the once-high-flying shoe brand, is itching for a comeback.
It starts with expanding beyond the millennials who swooned for its slip-ons and how it donated a pair of shoes to a needy kid for each one sold. To connect with today’s teens and early 20-somethings—a group dubbed Generation Z—the brand has ended the footwear donations that keyed its breakthrough a decade ago and is now giving a third of profit to causes it says this younger cohort cares about, such as gun violence. Marketing has been revamped to focus on teens. It’s also pushing further into sneakers.
This is all part of the brand’s bid to rebound from a remarkable fall that saw it sink from being touted in Vogue and worn by celebs such as Snoop Dogg and Anne Hathaway to being mismanaged by private equity into near-collapse—creditors took control of the debt-laden company in December 2019. Magnus Wedhammar, a former Nike and Converse executive, arrived shortly thereafter as CEO to clean up the mess.
“There’s no secret that over the last four or five years Toms has gone through a revenue decline,” Wedhammar said. But the brand still has decent name recognition, he said. “Most Gen Zs are aware of Toms.”
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To convert more into customers, the Los Angeles-based company will weave its new giving model into its marketing. The brand plans to use fewer professional models and instead highlight young people who are advocates for the causes the company is supporting.
Then there’s the deeper push into sneakers. One of the downfalls of the brand was that it relied too much on its trademark Alpargata slip-on, which made up half its revenue in the past. That especially hurt as Americans turned even more toward athletic-looking footwear—or not buying shoes at all—during the Covid-19 pandemic. Now it’s coming out with more sneaker-like versions of its hit model that have a thicker sole.
“We have a great opportunity to sneakerize the Alpargata,” said Wedhammar, who pointed to the use of weatherized materials like faux fur and rubber soles to make the shoe a fashion sneaker. However, he downplayed the performance aspects. “We’re not saying we’re going to make sneakers that compete against the Nikes and Adidases of the world.”
The decline of Toms has raised questions about the sustainability of giving away so many products (the company reported donating 95 million pairs of shoes through 2019). Toms, which is a certified B Corp., said that switching its charity model is financially sound and equivalent to what it was doing. Since making the change about a year ago, the money has mostly gone to Covid-19 relief funds.
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“Moving away from one-to-one is a big thing for Toms because we were sort of the pioneer of that movement,” said Amy Smith, Toms’s chief strategy and impact officer.
Looking back, Toms seemed like the ideal brand for a new age of consumers who said they cared more about where products came from and what companies did. Blake Mycoskie, a serial entrepreneur, founded the company in 2006 on the one-for-one shoe-giving model. He quickly became a leading advocate for integrating addressing social ills (like kids not having shoes) into business models—some called it compassionate consumerism.
The brand took off and brand extensions quickly followed, including into eyewear and coffee. It opened flagship stores. In 2012, Vogue included Mycoskie in its list of movers and shakers, saying he “revolutionized what we’ve come to expect from the things we buy.” Toms looked like a budding empire.
“They gained a loyal following,” said Shawn Grain Carter, professor of fashion business management at the Fashion Institute of Technology. “Their canvas shoe became synonymous with doing something that’s charitable, ethical and tangible.”
But copycats emerged, either by adopting the donation model or making similar shoes. With growth slowing in August 2014, it sold a 50% stake that included voting control to private equity firm Bain Capital, valuing the company at $625 million.
The deal was essentially a leveraged buyout, with Toms taking out a $300 million loan. It also marked Mycoskie being replaced as head of the company, although he remained its figurehead. About a year later, S&P Global Ratings downgraded the debt, saying the company was struggling to grow sales and return to profitability. Despite a slew of management changes, Toms kept fading under Bain’s ownership and hit bottom two Decembers ago when debtholders, led by Jefferies Financial Group, Nexus Capital Management and Brookfield Asset Management, took control. Bain declined to comment for this story.
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Making matters worse is that Americans cut back on footwear during Covid, with U.S. sales sinking 15% last year, according to researcher NPD Group. However, there are signs of improvement as vaccinations increase.
Toms generated revenue of more than $200 million last year, Wedhammar said. That’s down from almost $300 million in 2019, according to estimates by Moody’s Investor Service. A big reason for the decline is that its retail accounts got hammered by the pandemic. One positive is that the brand’s e-commerce unit had its biggest revenue year ever. Going into the pandemic, more than half the company’s sales came from its own channels.
Looking ahead, Toms ideally wants to maintain a lot of the 30-somethings that formed its breakthrough all those years ago, while pushing the brand younger. But even its head of marketing admits that will be difficult.
“We may lose some of them, and that’s OK,” Chief Marketing Officer Ian Stewart said of millennials. “You sometimes need to lose some to gain some.”
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