Recently, online retailer LuLaRoe came under fire as a class action lawsuit was launched against the company, calling it a ‘pyramid scheme.’ LuLaRoe is a United States multi-level marketing company that is based in Corona, California, and was first founded in 2012 by Deanne Brady and her husband Mark Stidham. On their website, they claim they provide an ‘opportunity to have the means, the time, and the flexibility to pursue your passions and to more fully enjoy the company of those you love.’
Four plaintiffs have launched the class action lawsuit against the direct clothes selling brand after they allege that the company intentionally deceived their ‘consultants’. The deception came when the company changed their initial policy that said they could get a full refund if they did not sell all their inventory. According to Yahoo, many of the consultants felt comfortable joining the company with its ‘buyback guarantee’ but around September of 2017, the company changed the refund policy from 100% to 90% with some restrictions.
As reported by Buzzfeed, some of the reasons for the lawsuit include the following: ‘consultants are instructed to keep around $20,000 worth of inventory on hand, and are inundated with the phrase ‘buy more, sell more’. These incentives mean new consultants 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.’ When consultants do make a profit, they are urged by those managing them to re-invest in more LuLaRoe merchandise.
As reported by Business Insider, this subtle change (which was not publicized to LulaRoe’s consultants) led to the deception of the consultants and thus the lawsuit. The suit was filed on October 13th in the US District Court for the Central District of California and it accuses LuLaRoe of six counts of misconduct including unfair business practices, misleading advertising, and breach of contract.
As reported on Buzzfeed, LuLaRoe is a direct selling company, which means that it does not sell merchandise via their own store or website. Their clothing can only be purchased via a consultant and members can only join via an existing consultant. As stated in a Business Insider article, consultants must buy at least five thousand dollars worth of inventory before officially joining the company. Furthermore, those consultants who recruit a lot of other members or sell a lot of merchandise are eligible to be promoted to a sponsor, trainer, coach, or mentor.
The four plaintiffs in the class action lawsuit are alleging that it is precisely this format that makes LuLaRoe a ‘pyramid scheme.’ While the company alleges that compensation is based on sales and not the number of new recruits, some consultants are still skeptical.
One unnamed consultant spoke to Quartz last August and said that she was forced to purchase more inventory despite the risk of incurring massive debt. She said: ‘I was urged to stop paying my bills to invest in more inventory, I was urged to get rid of television. I was urged to pawn my vehicle. I just had to get on anxiety meds over all of it because I’ve started having panic attacks.’ Business Insider reports that in September of 2015 there were only approximately 2,000 consultants, but today, there is an estimated 80,000 LuLaRoe consultants.
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