LuLaRoe

LuLaRoe is a United States-based multi-level marketing company that sells women's clothing.[2][3] LuLaRoe was founded in 2012[4] by Deanne Brady and her husband Mark Stidham, and is based in Corona, California.[5]

LuLaRoe
Private
IndustryMulti-level marketing
Founded2012
Founders
  • Deanne Brady
  • Mark Stidham
HeadquartersCorona, California, United States
Area served
United States
Key people
Mark Stidham (CEO)
ProductsWomen's apparel
Revenue US$2.3 billion (2017)[1]
Websitelularoe.com

As a multi-level marketing company, LuLaRoe recruits independent distributors (referred to by the firm as "fashion consultants")[5] to sell products directly, often through social media.[2] LuLaRoe reported sales of approximately US$1 billion in 2016, which would have made it one of the largest firms in the multi-level marketing industry at the time,[5] and by 2017, there were approximately 80,000 independent distributors selling the company's clothing.[3]

The company has received criticism and faced lawsuits from distributors and consumer advocates over several issues related to its business model, and for problems with the quality and design of its products.[5][6][7]

A class-action lawsuit filed in California in October 2017 and a lawsuit filed by the Washington State Attorney General in January 2019 accused LuLaRoe of being a pyramid scheme.[8][9]

History

LuLaRoe was incorporated on May 1, 2013. The company's name was derived by combining the names of Brady's first three granddaughters; Lucy, Lola, and Monroe.[10]

In 2014, LuLaRoe added skirts and dresses to its product line. In mid-2014, LuLaRoe introduced a line of leggings, which would go on to become LuLaRoe's most prominent product. With 23 employees and 750 distributors, the company did $9.8 million in sales.[11] By July 2015, the firm had 2,000 distributors.[11] In an August 2016 interview, LuLaRoe's CEO Mark Stidham claimed that the firm was on track to exceed US$1 billion in sales, and that LuLaRoe had 26,000 distributors and was shipping approximately 350,000 units a day.[11] By April 2017, LuLaRoe had more than 80,000 distributors.[3]

In early 2017, a class-action lawsuit was filed against LuLaRoe by customers, who complained that the firm's proprietary point-of-sale software incorrectly calculated sales tax rates on interstate sales, and in jurisdictions that do not charge sales tax on clothing. These complaints, combined with complaints over poor quality, led to the company's Better Business Bureau (BBB) rating being downgraded to "F" in January 2017.[5][6][12]

In October 2017, a class-action lawsuit filed in California accused LuLaRoe of being a pyramid scheme. Plaintiffs in the suit allege the company engaged in "misconduct, including unfair business practices, misleading advertising, and breach of contract."[13][14] According to the $1 billion lawsuit, which LuLaRoe argues is baseless and inaccurate, the company allegedly advised its distributors "to borrow money [...] take out credit cards, and some were even asked to sell their breast milk" as ways to buy additional inventory.[15][16]

In January 2018, the National Down Syndrome Society (NDSS), a charity that had previously worked with LuLaRoe, ended its relationship with the company after a top distributor mocked people with mental disabilities during a livestream sale. The NDSS requested that LuLaRoe sever ties with the distributor, but LuLaRoe declined, stating that they accepted the distributor's apology. The video, and LuLaRoe's reaction to it, prompted widespread online criticism.[17][18][19]

In December 2018, in the midst of mounting debt, layoffs, and an exodus of top sellers, LuLaRoe was sued by its chief clothing supplier, Providence Industries, for nearly $49 million. The lawsuit claimed that LuLaRoe was insolvent and had not paid its bills for seven months, and accused founders Mark and DeAnne Stidham of hiding assets in "shell" companies to fund their "lavish lifestyle" and to "hinder, delay, and defraud the creditors."[20][21]

In January 2019, the Washington State Attorney General's Office filed a lawsuit against LuLaRoe, as well as company CEO Mark Stidham and president DeAnne Stidham, alleging that the multilevel marketing company is an illegal "pyramid scheme," making misleading income claims, and encouraging its consultants to focus more on recruitment than selling clothes to customers.[9][22][23] In addition, LuLaRoe's chief clothing supplier, Providence Industries, also filed a lawsuit demanding a seizure of assets.[24] In February 2019, amid hundreds of new complaints totaling 300 cases, the company once again received an "F" rating from the BBB.[25][26] In October 2019, LuLaRoe announced it would be closing its distribution center in Corona, CA, relocating that part of the business to South Carolina, and laying off 167 people.[27]

In November 2019, LuLaRoe filed a countersuit against its former chief supplier, Providence Industries, seeking at least $1 billion in damages.[28][27]

Business model

LuLaRoe clothing is only sold by the company through multi-level marketing distributors. These distributors purchase inventory from LuLaRoe wholesale, which they then resell to consumers. LuLaRoe distributors are required to purchase an initial inventory of clothing and marketing materials that cost between $4,925 and $9,000 (as of 2017) and are recommended to keep around $20,000 worth of inventory on hand.[5]

Distributors can be compensated from two potential revenue streams: from direct sales to customers, and from a commission based on sales made by "downline" distributors they recruit.[4] According to the company's income disclosure statement, in 2015 the average annual commission earned from downline distributors was $85.[10]

LuLaRoe distributors sell LuLaRoe products through a party plan, through pop-up boutiques, or online using private groups that they have set up on Facebook. During a scheduled online event, LuLaRoe distributors use live-streaming video to present their current inventory to members of their Facebook group, with the distributor appearing on-screen to exhibit and describe each item.[2]

LuLaRoe distributors are disproportionately more likely to be in poorer rural areas than urban ones. An example cited by Quartz notes that LuLaRoe lists 10 distributors in Manhattan (population of 1.6 million), and 10 distributors in Pueblo, Colorado (population of 110,000).[7] This is consistent with other contemporary MLMs, which have concentrated in rural areas that have been slower to recover from the 2008 economic crisis.[7]

Products

LuLaRoe's main products are brightly patterned leggings, shirts, and dresses. The company's clothes tend toward modesty, based partly on the Stidhams's Mormon religious beliefs.[4][3] LuLaRoe releases 5,000 copies of any given pattern, and once a product has sold out, it is generally not reissued.[8] LuLaRoe distributors can choose styles and sizes, but not specific patterns, and each distributor is provided different products for their inventory. Distributors have noted that some patterns (known as "unicorns") are significantly easier to sell than others.[10][7][29]

The garments are manufactured in Asian and Central American factories via MyDyer, a Los Angeles-based apparel company that also produces for other retailers.[8]

Product quality and return policy complaints

In late 2016, LuLaRoe began receiving many reports from customers that the firm's leggings ripped and developed holes easily, in some cases shortly after being worn for the first time. In January 2017, the BBB downgraded the company's rating to "F" in response to the company's failure to address complaints, as well as for issues with charging sales tax in places that do not levy sales tax on clothes.[6] Customers also shared photos of the ripped leggings on social media, and created a Facebook group related to the complaints that had 16,000 members by March 2017,[30] the same month a class-action lawsuit was filed against the company by a group of customers. LuLaRoe's head of production attributed the damage to a production process that weakens the fibers while softening them.[3]

By April, the Facebook group had 26,000 members. LuLaRoe's CEO initially downplayed the damage rates as statistically insignificant, but in response to the complaints, on April 24, 2017, the firm implemented new policies to make it easier for customers and distributors to receive refunds on defective merchandise. The BBB rating was still "F" as of May 2017.[31][32][3]

In August 2017, multiple distributors complained on social media that they had still not received the refunds promised to them by LuLaRoe.[33] In September, LuLaRoe abruptly ended the changes to its return policy, which it had described as a "waiver". Distributors now receive only 90% of cost and pay for shipping and handling, along with other stricter stipulations. The change in policy prompted a backlash on social media, and a petition to grandfather in the old policies for distributors who were in process of canceling their distributorships.[34][35] As of March 2018, some sellers had complained that they had not received their refund checks for returns made under the April 2017 policy.[36][37][38]

As of June 2020, LuLaRoe had a B- rating with the BBB.[39]

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See also

References
  1. Peterson, Hayley (2018-11-20). "LuLaRoe is facing mounting debt, layoffs, and an exodus of top sellers, and sources say the $2.3 billion legging empire could be imploding". Business Insider. Retrieved 2019-11-10.
  2. Johnson, Megan (July 8, 2016). "Today's Tupperware party is held on Facebook". The Boston Globe. Retrieved January 20, 2017.
  3. Peterson, Hayley (April 25, 2017). "LuLaRoe is refunding everyone for pants that customers say 'rip like wet toilet paper'". Business Insider. Retrieved April 25, 2017.
  4. Diep, Francie (December 15, 2016). "Why Do So Many Women Love LuLaRoe?". Pacific Standard. Retrieved January 16, 2017.
  5. Berr, Jonathan (March 2, 2017). "LuLaRoe's business is booming, but some sellers are fuming". CBS News. Retrieved March 26, 2017.
  6. Schreiber, Sarah (27 February 2017). "[Updated] LuLaRoe Is Under Fire for Allegedly Overcharging Customers". Good Housekeeping. Retrieved 17 May 2017.
  7. Wicker, Alden (6 August 2017). "Multilevel-marketing companies like LuLaRoe are forcing people into debt and psychological crisis". Quartz. Retrieved 19 September 2017.
  8. Suddath, Claire (2018). "Thousands of Women Say LuLaRoe's Legging Empire Is a Scam". Bloomberg Businessweek. Retrieved 14 May 2018.
  9. Peterson, Hayley (January 25, 2019). "Washington Attorney General accuses LuLaRoe of operating an illegal 'pyramid scheme' in new lawsuit". Business Insider. Retrieved January 26, 2019.
  10. Peterson, Hayley (September 2, 2016). "Inside one of the fastest-growing clothing companies". Business Insider. Retrieved January 16, 2017.
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  12. Berr, Jonathan (24 February 2017). "Fashion marketer LuLaRoe sued over sales tax charges". CBS Moneywatch. Retrieved 17 May 2017.
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  16. Associated Press (27 October 2017). "$1B suit claims LuLaRoe encouraged women to sell breast milk for inventory". NYPost.com. NYP Holdings. Retrieved 1 November 2017.
  17. McNeal, Stephanie (29 January 2018). "People Are Horrified With LuLaRoe For Standing By A Retailer Who Mocked Down Syndrome". BuzzFeed News. Retrieved 29 January 2018.
  18. Cremen, Alanea (29 January 2018). "LuLaRoe sided with retailer who mocked those with special needs and people are not happy". WBIR. NBC News. Retrieved 29 January 2018.
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  25. Garcia, Elizabeth. "Washington Attorney General Files Lawsuit Against LuLaRoe". WHNT.com. Tribune Broadcasting. Retrieved 11 February 2019.
  26. Treece, Hannah (6 February 2019). "Former LuLaRoe consultant reacts to State of Washington lawsuit". KPLCTV.com. KPLC News. Retrieved 11 February 2019.
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