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LuLaRoe is accused of setting up pyramid scheme

A popular online clothing retailer has been hit with two new lawsuits accusing it of establishing a ruinous ‘pyramid scheme’ pressuring resellers to buy tens of thousands of dollars worth of inventory even though the clothes proved impossible to peddle.

LuLaRoe, a company based in Corona, California, is currently facing two class action lawsuits; the first was filed on October 13, and the second on Monday.

Both lawsuits accuse LuLaRoe, whose success has grown since its creation in 2012 by Deanne Brady and her husband Mark Stidham, of cheating its resellers, known as consultants, out of thousands of dollars. The most recent suit even alleges women were encouraged to use loans, take out credit cards or sell their breast milk to purchase more inventory.

Legal action: Popular online clothing retailer LuLaRoe (file picture) has been hit with two new lawsuits accusing it of establishing a ruinous ‘pyramid scheme’

Accusations: The company, based in Corona, California, is currently facing two class action lawsuits. The first was filed on October 13, and the second on Monday (file picture)

Accusations: The company, based in Corona, California, is currently facing two class action lawsuits. The first was filed on October 13, and the second on Monday (file picture)

LuLaRoe, a multi-level marketing company, works through independent resellers, who buy clothing, including dresses, skirts, leggings and T-shirts, from the brand before redistributing it, often via social media.

The company markets itself as a way for women to be able to pursue their dreams and make money while enjoying their work. On its website, it promises those tempted to become resellers their ‘own happy ending’.

But the lawsuits paint a much different picture. According to the one filed on Monday, participants were recruited unknowingly in what turned out to be an exploitative pyramid scheme ‘through manipulation and misinformation’.

‘Recruits were told that the opportunity entailed “part-time work for full time pay,”‘ the suit states.

‘This was not the case. Once consultants signed up, they were pressured to invest and reinvest by purchasing [LuLaRoe]’ clothing products—regardless of whether they were able to sell their inventory. Plaintiffs were inundated with the slogan “buy more sell more” and were told they would recoup their investments through retail sales and recruitment.’

Organization: LuLaRoe works through independent resellers, who buy clothing from the brand before redistributing it, often via social media (file picture)

Organization: LuLaRoe works through independent resellers, who buy clothing from the brand before redistributing it, often via social media (file picture)

Shocking: According to one of the two lawsuits, resellers were encouraged to resort to extreme means, including selling breast milk, to be able to buy more inventory

Shocking: According to one of the two lawsuits, resellers were encouraged to resort to extreme means, including selling breast milk, to be able to buy more inventory

The suit then describes how the ‘scheme’ started to ‘implode’ after a few years, because the company recruited so many new distributors, the market became too saturated for the clothes to sell.

‘Plaintiffs and the other consultants—who did not sit at the top of Defendants’ pyramid—worked very hard attempting to earn money selling Defendants’ products and, specifically in recruiting other consultants,’ the suit states.

‘However, Defendants’ endless chain scheme spread like wildfire and quickly created an over saturated market. Plaintiffs and countless other consultants were told they weren’t able to sell the product, because they needed to acquire more inventory.’

Ultimately, it became so hard to sell LuLaRoe’s clothing, that some resellers never even made profit, the suit adds.

‘Plaintiffs and so many other consultants were never able to realize any actual profit and, as a result, they failed,’ it reads. ‘They failed even though they were committed and put in the time and effort. They failed because they were doomed from the start.’

The suit accuses LuLaRoe of driving profit, not through retail sales, but through the inventory purchases of other distributors recruited by its consultants.

Consultants, according to the filing, are required to sell LuLaRoe’s clothes at at 40 per cent markup and are generally prevented from advertising lower prices.

They must also purchase between $4,925 and $9,000 worth of initial inventory and marketing materials and have no control over the clothes they are sent and tasked with reselling, the suit alleges.

Echoing the claims: Anonymous people have expressed doubts about the company online, such as this person getting worried after their wife became interested in LuLaRoe

Echoing the claims: Anonymous people have expressed doubts about the company online, such as this person getting worried after their wife became interested in LuLaRoe

Brutally honest: One person sought to discourage others to enroll as a distributor with the company and accused it of 'ruining' their financial life

Brutally honest: One person sought to discourage others to enroll as a distributor with the company and accused it of ‘ruining’ their financial life

The latest filing also points out that as more and more distributors were recruited into the venture, the quality of products started to decline. This echoes a previous lawsuit filed in April this year against the company as thousands of customers complained about the brand’s leggings, which according to one person ripped like ‘wet toilet paper’.

Throughout their time with the company, resellers are ‘intensely pressured’ to buy more inventory using the money they make from their initial investment, at least during their first year, the suit states.

‘In fact, consultants are instructed to keep around $20,000 worth of inventory on hand, and are inundated with the phrase “buy more, sell more,”‘ the document adds.

‘These incentives mean new consultants (at the bottom of the pyramid and in over saturated markets) are aggressively pressured to continue purchasing wholesale inventory even when the inventory they have is not selling, is unlikely to sell, or is piling up in their garage.’

Resellers who didn’t have enough money to keep buying more and more inventory were told to resort to extreme means, the suit indicates.

‘When consultants could not afford to purchase inventory, Defendants and their representatives encouraged them to borrow money, get loans, take out credit cards, and some were even asked to sell their breast milk to attain funds to purchase inventory,’ it reads.

LuLaRoe even encouraged its resellers to buy more inventory by awarding ‘pre-paid cruises and designer purses’ to those who purchased the most, regardless of whether they were actually selling these clothes to consumers, according to the lawsuit.

Plaintiff Aki Berry, of Sacramento County, California, says she invested $5,500 originally, before spending more money on items including hangers, portable clothing racks, shipping supplies, a shipping program, and scales.

‘Plaintiff Berry saw a plethora of recruitment videos and postings by Defendants and their representatives online. Those videos represented that consultants could make significant income by recruiting consultants and continuing to purchase large amounts of inventory,’ the suit states.

‘The consistent theme presented was to buy inventory. Consultants were told that they should have at least 10 items in every size in all styles. This was purportedly the “magic number” of inventory.’

Claims: LuLaRoe encouraged resellers to buy more inventory by giving 'pre-paid cruises and designer purses' to those who purchased the most, according to the lawsuit (file picture)

Claims: LuLaRoe encouraged resellers to buy more inventory by giving ‘pre-paid cruises and designer purses’ to those who purchased the most, according to the lawsuit (file picture)

Berry, according to the filing, had ‘great challenges’ in trying to sell LuLaRoe’s clothes, and resigned in June this year without recovering the money she had invested in inventory. 

The previous class action lawsuit, filed earlier this month, accuses LuLaRoe of changing the conditions in which consultants could leave the company.

‘As bait to lure consultants to sign up and/or to purchase more inventory, in April 2017, LuLaRoe promised consultants they could cancel their agreements with LuLaRoe and be refunded 100 per cent of the wholesale amount of inventory purchased, including shipping charges. The 100 per cent refund had no conditions or exceptions attached,’ the document states.

But, according to the lawsuit, LuLaRoe changed that policy in September, opting to reimburse 90 per cent of the merchandise’s value ‘with numerous exceptions’ and without free shipping.

One of the plaintiffs, Stella Lemberg from Fair Lawn, New Jersey, says she was a victim of ‘false and misleading’ promises from the company, including when she wanted the company to buy back her inventory.

‘Ms. Lemberg currently has approximately $20,000 worth of inventory, over 1,000 items of LuLaRoe clothing, in her possession, which have now been subject to LuLaRoe’s “policy change”, depriving Ms. Lemberg of the ability to return any of her inventory and her right to a 100% refund for that inventory along with shipping costs,’ the lawsuit reads.

LuLaRoe gave an explanation for the change in the return policy in a statement saying the full refund policy was always meant to be temporary.

“We decided to end the [100 per cent refund] when it became evident that a good number of retailers were abusing the program by returning product in extremely poor condition and providing inaccurate claims, as well as a retailers using it as temporary solution to struggles in their business,’ it said.

Anonymous people have expressed doubts about the company online, with one person saying on Reddit LuLaRoe was ‘ruining’ their financial life and accusing the brand of being unresponsive after they asked to end their business and return their merchandise.

This is not the first time this year LuLaRoe has faced legal action. 

In April, a lawsuit filed by Julie Dean and Suzanne Jones alleged that LuLaRoe knowingly created low-quality products that are ‘of such poor quality that holes, tears, and rips appear before wearing, during the first use or shortly thereafter.’

Downward spiral: LuLaRoe, who was once dubbed as the maker of 'the greatest leggings ever,' previously faced legal action in April after thousands of complaints about defective products

Downward spiral: LuLaRoe, who was once dubbed as the maker of ‘the greatest leggings ever,’ previously faced legal action in April after thousands of complaints about defective products

Faulty: A Facebook page had been set up where customers could share their stories¿and their pictures¿of the brand's 'defective' products, many of which ripped in the butt area

No thank you: Thousands of unhappy customers shared images depicting LuLaRoe's products in a state of total disrepair

 Faulty: A Facebook page had been set up where customers could share their stories – and their pictures – of the brand’s ‘defective’ products, many of which ripped in the butt area

The faults in our fabric: While LuLaRoe claimed their leggings are thin to evoke a 'buttery' texture, the plaintiffs in the lawsuit have compared them to 'wet toilet paper'

Holy moly! LuLaRoe customers claimed that defects in their leggings became apparent after just a few hours of wear, with some customers spotting issues before even trying them on

The faults in our fabric: While LuLaRoe claimed their leggings are thin to evoke a ‘buttery’ texture, the plaintiffs in the lawsuit have compared them to ‘wet toilet paper’

Showing skin: According to the previous lawsuit, LuLaRoe's return policy is unnecessarily sneaky and forces customers into buying new merchandise instead of getting a refund

Showing skin: According to the previous lawsuit, LuLaRoe’s return policy is unnecessarily sneaky and forces customers into buying new merchandise instead of getting a refund

Detailing: Customer complaints reveal product flaws in all shapes and sizes. From gaping holes to discoloration, it seems these leggings were wrong in every way

Detailing: Customer complaints reveal product flaws in all shapes and sizes. From gaping holes to discoloration, it seems these leggings were wrong in every way

Time's up: Just a few hours of wear was evidently all it took for these notorious leggings to start showing signs of distress. The LuLaRoe team chose to stand by its product

Time’s up: Just a few hours of wear was evidently all it took for these notorious leggings to start showing signs of distress. The LuLaRoe team chose to stand by its product

In a particularly disturbing allegation, the plaintiffs insisted LuLaRoe’s leggings tear as easily as ‘wet toilet paper.’  

Furthermore, the suit claimed that LuLaRoe was not only aware of these issues, but that the company actually refused to properly assist customers who filed complaints or initiated returns.

The plaintiffs’ claims were supported by thousands of unhappy customers. The problem was so severe that a Facebook group created specifically to share and discuss images of the ripped leggings has more than 20,300 members and counting. 

Less than a year ago, women everywhere were praising LuLaRoe for creating the ‘greatest leggings ever.’ But the two plaintiffs were seeking damages for all products created after March 31, 2016.

The suit suggested that LuLaRoe’s uptick in popularity may have motivated the company to lower its quality standards in favor of upping the volume of its output.

The company attempted to assure its loyal fan base that they stand by its product. A LuLaRoe representative told Daily Mail Online, ‘We categorically reject the fabricated and exaggerated claims of this suit in the strongest terms and believe it is completely without merit.’

Meanwhile, the lawsuit painted a darker portrait of what was happening behind the scenes at LuLaRoe.

According to the complaint, a company e-mail that circulated at LuLaRoe insisted, ‘The leggings may get holes, because we weaken the fibers to make them buttery soft.’

Read more at DailyMail.co.uk


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