LuLaRoe is a purveyor of stretch pants and dreams of financial security. It’s a multi-level marketing company that’s as famous for its pushy Facebook sellers as it is for its Disney-print Spandex pants. Now some LuLaRoe consultants have filed a class-action lawsuit against the company alleging that it is a pyramid scheme. They even say the company encouraged consultants to sell their breast milk to buy leggings.
Pyramid schemes and multi-level marketing companies have a lot in common, and the line between them can be very blurry. Pyramid schemes are illegal. MLMs are not.
What’s the difference between a pyramid scheme and an MLM?
According to the FTC: ”If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s probably not. It could be a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.”
LuLaRoe previously asserted that it was a MLM, not a pyramid scheme. The company told Quartz that most of most of its retailers make their money from selling the leggings. They alleged that in 2016, 72.63% of their consultants earned their income through selling clothing alone.
The plaintiffs of the new class-action lawsuit allege that LuLaRoe is a textbook pyramid scheme, and that the company’s main source of income is purchases by sellers to build their inventories, not sales to the public at all.
“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 says. “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.”
If they did manage to sell leggings, their supervisors or “uplines” reportedly told them to use the money to buy more inventory. Even if they didn’t sell the leggings, the plaintiffs allege the uplines instructed women to buy more anyway.
Plaintiffs allege LuLaRoe consultants were encouraged to max out credit cards and even sell breast milk to buy more inventory.
“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,” the suit alleges.
There’s a video on YouTube of a LuLaRoe mentor (“mentor” is the highest level an LLR consultant can achieve) telling an “inspiring” story of a woman who sold her breast milk to join LuLaRoe.
This is a pretty creepy video. They’re telling this story like it’s inspiring, but it’s grim. The woman has a newborn baby, and she’s working as a busser or a server at a restaurant, and she’s selling her breast milk to make the money to start a LuLaRoe business. And she’s really, really excited about LuLaRoe and “what it can offer her.” But 99% of people who invest in MLMs lose their money. She’d made $4,600 selling breast milk. Keep that! (At a dollar an ounce, wouldn’t that have been 35 gallons of extra breast milk?)
The lawsuit also says the company’s bonuses, like cruise trips and designer handbags, were awarded based on the amount of leggings purchased by sellers, not the amount actually sold.
Another extremely weird piece of information in the lawsuit is that consultants reportedly don’t have control over what patterns the company sends them to sell.
The lawsuit accuses LuLaRoe of being a pyramid scheme, according to the FTC’s guidelines.
“In other words, Defendants make profits not from their consultants sales to consumers, but solely from the purchase of inventory by consultants,” the lawsuit alleges.” Consultants are pressured to recruit and create a ”downline.” Those consultants with a ”down line” are paid bonuses not
by the actual number of LuLaRoe items sold, if any, by their ”down line” consultants, but by their inventory purchases from LuLaRoe.”
The lawsuit was filed on October 23. It will be interesting to see what comes of it.
What do you think, is LuLaRoe a pyramid scheme or a legit MLM? Let us know in the comments.
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(Image: Instagram / LuLaRoe)