One for One...

I don't usually utilize this space to trumpet individual products or companies, but I recently came across a company which could be providing an example of a new model for socially responsible investing, TOMS Shoes and Eyewear. From the company's website:

'In 2006, American traveler Blake Mycoskie befriended children in Argentina and found they had no shoes to protect their feet. Wanting to help, he created TOMS Shoes, a company that would match every pair of shoes purchased with a pair of new shoes given to a child in need. One for One. Blake returned to Argentina with a group of family, friends and staff later that year with 10,000 pairs of shoes made possible by TOMS customers.'

Messi fans, or just inspired by a trip to Argentina?

I don't personally own any TOMS products, but a recent purchaser and friend of the site is a big fan. 'I like that they help children in need,' she told me. When I asked whether she cared that there is likely a mark-up of over 100% (just a guess based on the fact that half of their product is 'sold' for free and a recognition that the company needs some kind of profit to remain an ongoing concern), she responded, 'No. There are always mark-ups on products from wholesale to retail. At least with TOMS I know that my money is going to a good cause.'

And, in the key for the conclusion of this post, she also noted that she would buy other products if she knew that they used the TOMS model, even if the mark-up was high, if her money were going to good use. In other words, allowing consumers to invest in social projects while buying goods might be an attractive model for other companies to follow in the future. Indeed it could even be a driver of sales if our sample set of one is any indication.

If this type of model is the future face of socially responsible investing, it is certainly a big departure from the early days when such strategies were mostly about owning equity in companies that didn't sell tobacco products or guns. While they might have created some social value for the investors, these strategies didn't always make sense from an investment perspective as they often yielded below-market returns.

However, the producer/consumer combo serving as partners in socially responsible schemes is potentially far more sensible for the producers and the consumers alike. If a producer wants to invest socially, he or she can set up a model like TOMS has. Consumers can purchase the products if they so choose, giving them the desired sense of well-being without worrying over returns. Meanwhile, this would leave them to focus on higher yielding investments (though of course not in Big Tobacco or Alcohol) when they put their personal portfolio manager hats on.

Cutting into profits to give away product for free clearly isn't a winning model for every company, but it could be with respect to fashion products where consumers are both aware of and already accepting of major mark-ups. As such, it is a trend worth watching, as it could be the best bet for social investing, both for producers and consumers, in the future.

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