In a troubling turn of events for LuLaRoe consultants, recent lawsuits have surfaced alleging that the company operates as a pyramid scheme, compelling its sellers to invest heavily in inventory that they ultimately cannot sell. The two lawsuits, filed on October 13 and 23 in the U.S. District Court for the Central District of California, claim that LuLaRoe pressures its consultants to stockpile excessive amounts of clothing, resulting in significant financial losses.
According to the October 23 lawsuit, consultants are instructed to maintain around $20,000 worth of inventory and are bombarded with the mantra “buy more, sell more.” This pressure creates a situation where new consultants feel obligated to constantly purchase wholesale inventory, even if they are struggling to sell what they already have. The lawsuit highlights a supposed “magic number” of inventory — having at least 10 items in every size and style — which consultants were led to believe was essential for success.
The allegations further detail how LuLaRoe allegedly misled consultants into making substantial financial commitments. Some plaintiffs report being urged to max out credit cards to keep their inventory stocked, with one LuLaRoe mentor, Sarah Thompson, even suggesting extreme measures like selling personal items to raise funds for inventory.
The lawsuits assert that many consultants at the base of LuLaRoe’s structure were set up for failure, with little chance of turning a profit. “The vast majority of consultants are unable to generate any actual earnings and some have faced financial ruin due to the relentless pressure to invest in inventory,” the lawsuit states. One plaintiff, Jessica Reed, shared that she invested $6,000 of her savings only to find herself overwhelmed by an influx of new consultants and a saturated market.
The issue is compounded by LuLaRoe’s strategy of encouraging consultants to recruit new sellers beneath them, creating a complex network where profits primarily flow to those at the top. This begs the question: how is this not a pyramid scheme?
Complicating matters further is a recent shift in LuLaRoe’s return policy. In April 2017, the company introduced a temporary policy allowing consultants to return unsold inventory for a full refund, including shipping costs. However, this policy was changed back in September, limiting returns to a mere 90% refund and placing the burden of shipping costs back on the consultants. Many are now left with thousands in unsellable clothing or face financial loss when trying to return items.
Plaintiff Amanda Johnson states she was misled into believing she could easily return poor-selling items. “I now have approximately $20,000 worth of LuLaRoe inventory that I can’t return,” she lamented.
LuLaRoe has responded by claiming that the changes were made due to misuse of the return policy by some consultants. “We decided to revoke the temporary policy after noticing that a significant number of retailers were taking advantage of it by returning products in poor condition,” the company stated.
Many of the plaintiffs were drawn to LuLaRoe due to its seemingly supportive, women-centric ethos, believing it would help solve financial challenges. Unfortunately, the reality has proven to be quite the opposite.
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In summary, the ongoing legal troubles for LuLaRoe underscore significant concerns regarding their business practices and the financial well-being of their consultants. As these lawsuits unfold, the future for many involved remains uncertain.