LuLaRoe, a Corona, California-based company known for its brightly-colored clothing, has been hit with a lawsuit that claims the business is a pyramid scheme.
Founded in 2012 by husband and wife team DeAnne Brady and Mark Stidham, LuLaRoe has developed into a $1 billion enterprise with 80,000 distributors, many of whom are millennial mothers.
The lawsuit says LuLaRoe recruits hopeful employees to sell its wares from home, but leaves them in “financial ruin.”
You can read the full lawsuit here.
LuLaRoe advertises itself as a way for people to hold profitable jobs with flexible hours and limitless income, but it probably won’t make you rich. The average multi-level marketing company sales rep earns just $750 per year before expenses, a figure that hasn’t changed since 1980.
Millennial women sign on as LuLaRoe consultants hoping to earn easy income, but many take on credit card debt or loans to purchase inventory and are left with rooms full of unsold clothing.
Filed on October 23 by Aki Berry, Cheryl Hayton and Tiffany Scheffer, the claim demands at least $1 billion in damages from the company, which pulled in around $1 billion in sales last year.
“The promise of lucrative rewards for recruiting others tends to induce participants to focus on the recruitment side of the business at the expense of their retail marketing efforts, making it unlikely that meaningful opportunities for retail sales will occur,” the lawsuit said.
Launching a LuLaRoe business isn’t cheap. An investment of $2,047 is needed for the basic package, which includes 50 (2-pack) one size fits all leggings, 20 (2-pack) small, medium, large and extra large leggings, 25 dresses and 10 (2-pack) “tween” leggings.
The most expensive package comes with 503 pieces of clothing and runs $9,058.25.
“Consultants are instructed to keep around $20,000 worth of inventory on hand, and are inundated with the phrase ‘buy more, sell more,’” the lawsuit added. “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.”