You may have noticed in recent years an uptick of Facebook friends hawking leggings, skirts, cardigans, and other clothing items in groups dedicated to LuLaRoe. The multi-level marketing company has become a popular option for ambitious “consultants” hoping to earn money and maybe start a career. However, some current and former LuLaRoe sales reps are now publicly voicing their concerns about the company’s business practices.
A new report from CBS MoneyWatch looks into a variety of complaints from LuLaRoe consultants: that they were misled into purchasing thousands of dollars in clothing; that there are problems with the company’s return policy; and that LuLaRoe may be retaliating against reps who speak out.
LuLaRoe, founded in 2012 by DeAnne Stidham, follows in the footsteps of other multi-level marketing companies like Amway, Herbalife, Rodan and Fields, and many others.
MLM companies promise to make you money in two ways. One is through the actual direct sales: You buy inventory for one price, and then sell it to your friends and family for a slightly higher price. The other, more common, tactic for MLM sellers is bringing more people in under them. Each individual makes money when they bring in more individuals below them, and when those individuals then recruit more individuals below them, and so on.
This pyramid-shaped business model is often presented as a way for sales consultants — who are not employees, but independent contractors — to grow their own business on their own terms, but many of the LuLaRoe consultants who spoke to MoneyWatch claim the company the company didn’t live up to its promises.
We recommend reading the full MoneyWatch report, but here are four key takeaways from the article:
1. THE IMPORTANT NUMBERS
LuLaRoe, for those not familiar, sells women’s, men’s, and children’s clothing items, often through Facebook and other social networking sites, but also at pop-up shops in customers’ homes.
The items, which include T-shirts, leggings, skirts, dresses, and other apparel, range in cost from $23 to $70, depending on the consultant, CBS MoneyWatch reports.
CBS MoneyWatch reports that LuLaRoe declined to discuss its financials or disclose other details about the business. However, MoneyWatch notes that previous estimates put the number of consultants at around 35,000 in 2016.
While LuLaRoe has an “income disclosure statement” on its site providing some details on the money it pays out to consultants, exactly how much LuLaRoe earns is unclear. However, as MoneyWatch notes, court documents from a lawsuit involving LuLaRoe indicate that annual sales are now around $1 billion.
But those sales didn’t come without a price, some consultants tell CBS MoneyWatch.
2. BUYING IN
Like other MLM companies, those who want to sell LuLaRoe must purchase their own inventory from the company.
CBS MoneyWatch reports that the “onboarding package” for new LuLaRoe consultants ranges from $4,925 to around of $9,000.
But the cost doesn’t end there. The company also recommends that consultants keep a large inventory on hand to meet customer demand. In some cases, CBS MoneyWatch reports the recommended inventory level translates to about $20,000 worth of inventory.
Tracy Coenen, a forensic accountant and critic of the company, estimates — based on a LuLaRoe income disclosure — that because of the high costs — many consultants earn just $85 in commission each year.
One rep tells CBS MoneyWatch that while the company promises that consultants will make earn a full-time equivalent salary for part-time hours, that isn’t the case when you include all of the hours spent preparing for “pop-up” parties, going through inventory, and updating online sales groups.
“I’m now saddled with over $7,000 in debt and tons of leftover inventory that even other consultants won’t buy from me,” one LuLaRoe representative told CBS MarketWatch. “The only positive thing that came out of this experience is some of the awesome women that I met through it all. But I regret everything else.”
3. DEFECTS & RETURNS
Some reps say that customers complain about LuLaRoe products that rip or tear easily, and that getting refunds or replacements is difficult if not impossible.
LuLaRoe reportedly makes return/refund decisions on a case-by-case. One rep tells MoneyWatch that she’s been unsuccessfully trying to return defective products for nearly a year.
Consultants say these strict policies leave them with merchandise they paid for but can’t sell or return. Some reps allege that LuLaRoe has retaliated against those who raise concerns by delaying or refusing to send them their orders.
4. OTHER ISSUES
CBS MoneyWatch reports that LuLaRoe is facing at least two legal challenges, one related to its tax practices and another filed by an artist who claims the company stole his designs.
In late February, a federal lawsuit was filed against the company claiming it collected sales taxes from customers in states that don’t levy one on clothing. In some cases, this led to overcharges of up to 10.25%.
According to the suit, the company uses a proprietary online point-of-sale software that automatically charges customers sales tax based on the location where the salesperson is rather than where the customer is located.
A separate lawsuit filed in January by a Hungarian artist accuses the company — which claims to create 400 unique designs for clothing on a daily basis — of stealing designs.
CBS MoneyWatch notes that when LuLaRoe learned that a third-party artist had copied the designs it cut ties.
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