A pyramid scheme that lands employees in “financial ruin” – those are the serious allegations in a lawsuit filed against LuLaRoe, a clothing company staffed with 80,000 distributors.
The California-based company amassed over $1 billion in sales in 2016 and recruits many employees that happen to be millennial mothers.
The company said its sales from January through October of this year have surpassed $2 billion.
The company was founded in 2012 and is known for the brightly colored leggings that many sellers splash across Facebook pages, looking to entice buyers and make a profit – or at least break even – from their initial investment to get started as a distributor.
According to research by Parents.com, the average multi-level marketing company sales rep earns just $750 per year before expenses, a figure that hasn’t changed since 1980.
As for LuLaRoe consultants, launching their own business is an initial investment of $2,074 for the basic package. That package includes 50 one size fits all leggings, 20 small, medium, large and extra large leggings, 25 dresses and 10 “tween” leggings.
The most expensive package that includes 503 pieces of clothing will set back an investor $9,058.25.
“They failed because they were doomed from the start,” the lawsuit, filed on behalf of three Sacramento County women, claims.
“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.”
More outrageous claims included in the suit outline aggressive tactics used by the company to encourage consultants to stay with the company.
“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, filed by Sacramento attorney Joshua H. Watson, says.
LuLaRoe has called the lawsuit “inaccurate” and said the company’s success “has made us the target of orchestrated competitive attacks and predatory litigation. We take all litigation – regardless of its lack of merit – seriously.”