Skechers Chases Toms Seeking to Woo Do-Good Millennials: Retail
When Blake Mycoskie founded Toms shoes six years ago, his pitch to consumers -- buy a pair and a second one will be donated to the needy -- helped start a phenomenon retail consultants call compassionate consumerism.
Since then it has been imitated widely by established brands. Inspired by Toms, Skechers USA Inc. (SKX) introduced a brand called BOBS, as in Benefiting Others By Shoes. Urban Outfitters Inc. (URBN) stores feature apparel by Threads for Thought, which gives part of its sales proceeds to humanitarian groups.
For retailers such as Skechers, whose revenue fell 20 percent last year, the charity angle is a way to persuade wary consumers to spend in a tough economy, Bloomberg Businessweek reports in its Aug. 6 issue. Shoppers in their late twenties and early thirties, the so-called millennials, are particularly susceptible to such pitches, because they lack the means to make big donations and they admire brands that embody their save-the- planet ethos, according to Mara Einstein, whose book Compassion, Inc. was published in April.
Still, the efforts increasingly seem like a naked marketing ploy to spur sales and could backfire, she said. “It’s almost become marketing wallpaper,” said Einstein, a professor at Queens College in New York. “Everybody is getting on the bandwagon.”
When done right, altruistic retailing strategies make donors feel good, according to Einstein. A pair of Toms shoes confers on the wearer a philanthropic halo, much as a Toyota Motor Corp. (7203) Prius lends the driver instant green cred. A major catalyst of this kind of charity-driven marketing was Lance Armstrong’s Livestrong foundation, she said. “You wore a bracelet every day that communicated to people that ‘I care enough to donate to people who have cancer.’”
The key to the success of such products is so-called authenticity, a word much used in retail marketing these days. Nordstrom Inc. (JWN) sells hats made by Krochet Kids International with the slogan, “Buy a Hat. Change a Life.” Founded in 2008 by three college-age buddies, it enlists impoverished people in nations such as Uganda and Peru to crochet hats, which are sold for about $24 in the U.S. The hats are signed by their makers, adding to the notion that they’re somehow more “authentic” than, say, one by VF Corp.’s (VFC) North Face.
By selling the hats, Nordstrom gets some of the reflected glow. Ditto for stores that sell apparel from Threads for Thought. The New York for-profit maker of $63 maxi dresses and $58 men’s fleece hoodies donates a percentage of sales to the International Rescue Committee and the Natural Resources Defense Council.
The core customers of FEED Projects, which makes handbags, T-shirts, and accessories and donates a percentage of profits to United Nations antihunger programs, are from 15 to 35 years old and are interested in causes they read about on the Web, says co-founder Lauren Bush Lauren, a niece of President George W. Bush who recently married Ralph Lauren’s son David.
Compassionate consumption “really resonates with younger people because young people don’t have a lot of disposable income,” says Toms founder Mycoskie. “It’s their parents who write checks for charity.”
Some companies’ adoption of compassionate marketing has sowed controversy. For example, Skechers’s BOBS shoe line is similar to Toms’s Argentine-style canvas espadrilles, and it’s “kind of in poor taste to knock off,” said Corinna Freedman, an analyst with Wedbush Securities.
Skechers upped the ante on Toms by initially donating two pairs for every one it sells. BOBS also are slightly cheaper, starting at $38 compared with $44 for a pair of Toms. Skechers recruited Dancing with the Stars winner Brooke Burke-Charvet to promote BOBS in television commercials and says it has donated more than 1 million pairs in just over a year. Los Angeles-based Toms says it donated more than 1 million pairs in four years.
Generating perhaps $50 million in sales, BOBS is a plus for Skechers, which aims to have many modest revenue streams to spread out its risk, according to Sam Poser, an analyst at Sterne Agee & Leach. Sales of BOBS shoes also can sport higher profit margins than other Skechers goods because they cost much less to make, says Wedbush’s Freedman.
Skechers President Michael Greenberg, in an e-mail, made no apologies for starting his own charity line. “Companies that have the means should do what they can to make a difference, and it’s beneficial for multiple footwear brands to join this cause to make an even bigger impact,” he wrote.
While BOBS has drawn some criticism in social media, investors and customers will probably look past the backlash, since producing BOBS is in keeping with Skechers’s long-standing business model of mimicking the latest hot shoe fad, Freedman said. “They glom on to the next trend and exploit it.”
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