LuLaRoe: A Devastating Multi-Level Marketing Cult
The LuLaRoe's Pitch
LuLaRoe touts itself as a family-style business. It claims its independent fashion consultants can earn a full-time paycheck for part-time work. Those targeted come predominately from suburban and rural areas that didn't bounce back after the 2008 economic crash. They claim consultants can earn a high income, provide for their family, have flexible work hours, become part of a sisterhood of supportive women, and find meaning in your life—all of this for a modest investment of $5k to $9k.
The Truth
More than 80,000 women have spent thousands on boxes of brightly colored leggings and worked 80+ hour weeks to try and make a living.
Despite a participant's hard work, most earn pocket change. According to a 2011 report from the Federal Trade Commission (FTC), 99% of consultants never earn back their initial investment and end up spending more and more money each month due to peer pressure and coercion.
Business Model
LuLaRoe's clothing is sold through multilevel marketing distributors. These distributors or "fashion consultants" purchase inventory from LuLaRoe wholesale and then resell it to consumers. LuLaRoe consultants must buy an initial stock of clothing and marketing materials running between $5,000 and $9,000(as of 2017) and are recommended to keep roughly $20,000 worth of inventory on hand.
Consultants are told to reinvest their earnings into inventory, or if they're big earners, to live lavish lifestyles and buy big-ticket items like cars and vacations to entice new consultants into the fold. By spending their bonus checks every month, consultants became dependent on these bonuses and couldn't leave the company (Vice, 2019).
LuLaRoe's History
LuLaRoe was founded in 2012 by Deanne Brady and her husband Mark Stidham in Corona, California. LuLaRoe gets its name by combining Brady's three granddaughters' names: Lucy, Lola, and Monroe.
By the end of its first year, the company had grown to 10 permanent employees, 145 independent distributors, also known as "Fashion Consultants," and $3 million in sales. In 2014, the company expanded its clothing line to include its premier product, leggings. By the end of the year, the company had 23 employees, and 750 consultants and made $9.8 million.
In July 2015, LuLaRoe had 2,000 consultants. By August 2016, CEO Mark Stidham claimed that the company was planning to exceed $1 billion in sales, employed 26,000 consultants, and shipped around 350,000 units of clothing per day. In April of 2017, LuLaRoe had over 80,000 fashion consultants and had made $2.3 billion in sales (Vice, 2019).
How MLMs
MLMs lay on the self-empowerment lingo, and #girlboss mythology repacked for those who believe men should be the breadwinners (conservative Christians and Mormons). MLMs only sell through networks. Not online or in stores. Sellers buy from a parent company and then resell products to friends and family, pocketing profits like a franchise. Yet, the real earning potential isn't from direct sales but recruitment. A percentage of what they earn goes back to their recruiter for each person recruited, but only if they meet sales goals. And cue the peer pressure and coercion to get the cash rolling. The further down the recruitment line, the less likely a recruit will earn anything.
Most LuLaRoe sales occur through pop-up parties or social media groups like Facebook. Consultants create private events, invite potential customers, and sell products through live-streaming videos.
MLMs vs. Pyramid Schemes
One sign that an MLM is a pyramid scheme is when the company emphasizes recruiting instead of selling the product. The lynchpin is when someone makes money from another recruit orders rather than sells. This is the key to a pyramid scheme. LuLaRoe changed its model in 2017 to comply with the Federal Trade Commission (FTC) and made bonuses based on what consultants sold, not what they purchased (Vice, 2019).
MLMs in Government
Betsy DeVos, former secretary of education, is married to the co-founder of Amway, Ben Carson was the spokesperson for Mannatech, a vitamin MLM, and former president Donald Trump used to have an MLM under the name, Trump Network was a spokesperson for another.
How LuLaRoe used to work
Bonus checks were awarded monthly, but consultants had to buy, not sell, a certain amount of product to get a check. This included consultants recruited down the line and led those higher up the chain to push recruits to buy more products. In turn, LuLaRoe pushed consultants to recruit as many people as they could (Vice, 2019).
A consultant received 5% of what each consultant under them purchased, but only if the underlings purchased 175 items. When a consultant reached mentor status, they received 3% for those down the line from them (whom their recruits recruited). Still, they only received this additional 3% bonus if their entire team bought, not sold, 1,750 pieces. This revenue continued down the line and is how people at the top made more money from recruiting than selling (Vice, 2019). The FTC came in and told LuLaRoe they couldn't base bonuses off of items bought. That's a pyramid scheme, which is illegal. However, they could base bonuses on how much product was sold. So LuLaRoe changed its bonus platform to comply with the FTC.
The Merchandise
While LuLaRoe boasts a <1% defect rate of their clothing, a lower than average rate, some consultants see more than half, if not all, of the merchandise sent to them, is already damaged or assembled with significant flaws: one leg longer than the other, horrible prints poorly constructed, inconsistent sizing, tears, and holes occurring within in first or second time of wearing them. Sometimes products will arrive smelling nasty or wet and mildewed (Jeffries, 2017; Vice,2019).
Suppose consultants happen to have their merchandise arrive in good order and manage to sell them. In that case, any items that happen to develop flaws after a single wear or washing are the customer's responsibility, not LuLaRoe or the consultant. LuLaRoe claims that each consultant acts as an independent store and is solely responsible for their product (Jeffries, 2017). I would argue here that any Independent business would forego doing business with a supplier who sold faulty products and refused to honor replacing the product or monetarily reimbursing the company. The issue here is that LuLaRoe consultants can't just find a new supplier. They are stuck with crappy quality.
LuLaRoe had a 100% buyback policy for damaged clothing for a while. Shortly after implementing the policy, the company did away with it, claiming that consultants were abusing the policy (Vice, 2019). It was more likely that the product was of low quality, and they didn't want to pay for it.
What consultants can expect to make with LuLaRoe
Consultants are compensated via two revenue streams: direct sales to consumers and commissions by recruiting additional consultants. Based on the company's disclosed income statement in 2015, the annual commission earned from recruitment was $85. Not even grocery money.
As a company, LuLaRoe does not disclose the earning potential of its consultants. If you were to open a fast-food franchise, you would be offered page after page of crunched data estimating your earning potential broken down annually as well as daily. This is not the case with LuLaRoe. Consultants aren't offered even a single page of analysis estimating how much they can expect to earn. While a few are outspoken about making loads of cash with LuLaRoe, most have a much different story. In 2015, high earners received bonuses, averaging around $80 per person. However, over three-quarters of consultants received no bonus. (Jeffries, 2017).
Most women make an average of $6-$9 an hour. Hardly a living wage (Jeffries, 2017). Maybe someone should have asked which developing country LuLaRoe based their "full-time wage" on.
Company Cult-ure
Recruitment
LuLaRoe owner Deanna Brady would appear on live-streaming "opportunity calls" to recruit more consultants (Vice, 2019). Her involvement made women feel unique and inspired.
State only the "positive."
Inside the LuLaRoe handbook, it is policy to always speak well of the company, your fellow consultants, and your competitors. Consultants are encouraged to report on their peers who are not adhering to the LuLaRoe culture (Jeffries, 2017). Those who dissented were ostracised by others (Vice, 2019).
Use of Peer Pressure and Coercion
LuLaRoe's leadership uses shame and guilt to influence and control consultants through peer pressure and persuasion. For instance, consultants are made to feel guilty for getting into debt. After all, no one made them put tens of thousands of dollars on their credit cards. That was their choice (Jeffries, 2017).
In addition, the founder, Deanne, would meet with women at the Mentor level for dinner and encourage them to get gastric bypass surgery with a doctor she knew in Tijuana who had done her surgery. Along with Deanne and her sister, they pressured women to join the Tijuana Skinnies, a private Facebook group of women thinking of getting the surgery, and those who already had (Vice, 2019).
LuLaRoe offers major perks to their top sellers in the form of cruises, lavish parties, and private concerts with celebrities like Katie Perry and Kelly Clarkson (Vice, 2019).
A New Reality
LuLaRoe creates a new reality for consultants. If you were to shop at a major clothing retailer and bought something that fell apart in two wears, and the retailer refused to exchange or refund the product, you'd find this unethical and probably stop shopping there (Jeffries, 2017). But that's what LuLaRoe has consultants do. The company makes the consultants responsible for faulty products, passing that responsibility on to the consumer. If you bought it and it fell apart, it's your fault, not the manufacturer (Vice, 2019).
Lawsuits and Hot Water
LuLaRoe has a D+ rating from the Better Business Bureau (up from their F rating in 2017) and a rating of 2.2 on GlassDoor.
In 2017, a class-action lawsuit was filed against LuLaRoe by customers who complained that the sales software incorrectly calculated sale tax rates on interstate sales and charged sales tax when a state had none.
California filed suit against the company in 2017, and The Attorney General of Washington State filed suit in January 2019 for violating the state's anti-pyramid scheme laws:
Under the Consumer Protection Act and the Anti-pyramid Promotional Scheme Act in the King County Superior Court. The complaint filed alleges that the business incentivized existing consultants to recruit and sponsor new consultants and entice them to purchase large amounts of inventory. While significant inventory loading was encouraged, a refund policy was not disclosed to consultants wishing to cancel. These allegations violate state law prohibiting multilevel marketing that promotes an unlawful pyramid scheme as well as other unfair and deceptive acts. This matter is pending.
Six years after LuLaRoe started, they have had 35 lawsuits brought against them, and their Consultants have fallen to 35,000 but continue to recruit actively. People don't speak out because they are afraid of losing their friends. (Vice, 2019).
References
Jeffries, Bridget Jack, (2017). Avoid LuLaRoe: Six Reasons to Say LuLaNO. The Pink Truth. http://www.pinktruth.com/2017/04/07/avoid-lularoe-six-reasons-to-lulano/
LuLaRoe Leadership Bonus Plan, (2018). https://s3-us-west-2.amazonaws.com/llrprod/exigo/llrAdmin/documents/LLR_Ldr_Bonus_Plan.pdf
Vice. "Why Women are Leaving LuLaroe." Vice Video: Broadly Specials, 2019, https://video.vice.com/en_us/video/why-women-are-leaving-lularoe/5cd2e56dbe407766d2269f41
Originally published at https://demiworld.net on December 23, 2019.
