LuLaRoe's business is booming, but some sellers are fuming

LuLaRoe, already fighting a lawsuit accusing it of improperly taxing customers, is now under fire from some of the very salespeople who have powered the multi-level marketer’s meteoric growth as a seller of women’s clothing.

Sales representatives with LuLaRoe -- who are technically independent contractors -- have told CBS MoneyWatch the company misled them about the time and risks involved in launching a LuLaRoe business, as well as the potential income people can earn from becoming a “consultant” who sells its merchandise. They also claim LuLaRoe is slow to process refunds for products they buy that turn out to be defective.

The sales reps spoke on condition of anonymity, claiming that LuLaRoe has punished sellers who criticize it publicly by blocking them from ordering products.

Attorney Bruce Carlson of law firm Carlson Lynch Sweet Kilpella & Carpenter said LuLaRoe salespeople recently consulted him after learning his firm is representing a Pennsylvania customer who is suing LuLaRoe for allegedly charging tax on purchases she made from the company last year despite the state not taxing clothing sales. Carlson Lynch has not been retained to pursue any legal action on behalf of the sales reps interviewed for this story.

600 percent growth

LuLaRoe was founded in 2012 by DeAnne Stidham, who, according to the company’s website, was a single mother of seven children at the time and named the company after her three oldest grandchildren, Lucy, Lola and Munroe. Stidham started designing skirts, and the designs took off, fueled largely by buzz on social media. Her husband, Mark Stidham, is the Corona, California, company’s chief executive.  

Multi-level marketers (MLMs) are businesses that largely depend on selling their products through independent distributors, who are encouraged or required to recruit other sellers. Critics contend that most participants in these enterprises lose money. Other well-known MLMs include Amway, Herbalife (HLF) and Mary Kay.

LuLaRoe’s sales have soared 600 percent to around $1 billion as of 2016, according to details released as part of the suit regarding its tax practices. That would make the privately held firm one of the country’s largest MLMs.

LuLaRoe has declined to discuss its financial performance and other company details, including its total number of consultants. Business Insider last year pegged the figure at 35,000, up from 2,000 in 2015. The company also declined to answer questions about the complaints leveled at the company by some of its sales reps, as well as to discuss how much sellers of its wares typically earn.

“LuLaRoe wouldn’t be where we are today without the passion, dedication and success of our fast-growing network of independent retailers,” the company said in a statement to CBS MoneyWatch. “We take the concerns or questions they have seriously. Beyond that, we do not comment on rumors and speculation, and believe these allegations are without merit.”    

About 90 percent of LuLaRoe’s sales reps who have joined the company since 2012 still sell its products, said a source close to the company.

One reason for LuLaRoe’s success has been its use of social media to attract both customers and sellers of its products, which the consultants sell at parties known as “pop-ups.” The company, whose tagline is “where fashion meets comfort,” has become popular as a supplier of colorful apparel including skirts, tops, leggings, cardigan sweaters and a kimono with patterns using women’s names. Men’s merchandise and children’s clothes are also available. Prices vary depending on the consultant, but generally range from $23 to $70.

LuLaRoe’s message of empowerment has particularly resonated with millennial women. It proclaims on its website that joining the company “can restore or improve confidence in both your appearance and your abilities and it will provide immense satisfaction as you help others to find such confidence in themselves.”    

To become a LuLaRoe vendor, new salespeople are required to buy what the company calls “onboarding packages” containing an assortment of the its fashions, at a price of $4,925 to upwards of $9,000. LuLaRoe also recommends that salespeople keep about $20,000 in inventory at any given time and enourages consultants continually to invest in their businesses. 

The high costs are meant to convince wannabe entrepreneurs that LuLaRoe is a “serious” business. Still, turning a profit is difficult. The company estimates the average commission that reps earn is a paltry $85 per year, according to Tracy Coenen, a forensic accountant and critic of the MLM industry, citing a 2015 income disclosure statement from LuLaRoe. In a January post on her blog, Coenen described LuLaRoe as a “grand scheme made to look like a real business.”

Checking for holes

Along with LuLaRoe’s rapid growth has come a raft of complaints about the quality of its products. A private Facebook group dubbed “LuLaRoe Defective” has more than 11,000 members, and many say the quality of the company’s products is slipping.

“My husband now does ‘legging checks’ to make sure my butt doesn’t have holes before I leave the house,” wrote Jess Dove, a member of the group. “Yes, it’s a way for him to admire my assets, but too many times it was actually needed.”

Said another consumer on Facebook, “I have only bought [LuLaRoe] in the past month, and everything has gotten holes. Every legging is a different size, some fabrics feel ultra thin, some thicker. Some are improperly sewn. But all have ripped.” 

LuLaRoe will buy back inventory from unhappy representatives on a case-by-case basis, the source close to the company said.

Still, LuLaRoe’s record addressing consumer concerns has earned it an “F” rating from the Better Business Bureau for ignoring consumer complaints.

Some LulaRoe salespeople say they’ve been inundated with returns from unhappy customers, leading the reps to seek refunds from the company for defective merchandise. One rep said she has sought a refund from LuLaRoe for nearly a year for roughly a dozen different products, to no avail. 

LuLaRoe claims to take an average of four to 10 business days to process these requests.

In a related problem, the company has made it harder to get refunds, refusing to accept returned merchandise that was torn after being worn or washed once, according to three sales reps. As result, some LuLaRoe salespeople are stuck with thousands of dollars of unsellable merchandise, they contend.

The company is aware of the problem with damaged merchandise. In an internal email sent to sellers in April, CEO Mark Stidham, urged them to try to unload their damaged merchandise. 

“The time and effort it takes to collect, send in and receive your refund could be invested in finding different ways to strengthen your business and develop ideas on how to sell your damaged items,” he wrote.

Policing the brand

Sales reps who have publicly raised concerns about LuLaRoe’s business practices have found themselves punished by the company, which refuses to honor their orders, sources said. LuLaRoe encourages salespeople to report fellow vendors who speak negatively about it to its compliance department, they said.

“... always know that we are fierce defenders of the Culture of LuLaRoe,” Stidham wrote in a Jan. 10 email to consultants. “If you see something not in line with the culture, see it as your responsibility to report those things.” 

LuLaRoe creates about 400 designs on a daily basis, a key selling point for the brand. The company markets its designs as being unique because they are made in limited quantities, with some especially sought-after styles known as “unicorns.” Salespeople are allotted particular patterns and aren’t able to pick the products they want.

But questions have arisen about just how unique LuLaRoe’s designs really are. In January, Hungarian artist Balaz Solti filed a federal lawsuit in California accusing the company of stealing one of his designs. When the marketer learned that a third-party artist had copied Solti’s design, it immediately terminated its relationship, a source close to the company said.  

Another bone of contention is how much sales reps can earn selling LuLaRoe’s products. Some consultants claim that people can make the equivalent of full-time pay working only part-time. An internal LuLaRoe email said reps can set up and run a pop-up store by working 20 hours a week.

“These numbers are rock solid and this business was designed to work just for you,” the memo said.

A LuLaRoe rep said that estimate doesn’t include the hours of work needed to prepare the parties, including taking pictures of merchandise. Indeed, some consultants are embittered by their experience with LuLaRoe.

“I’m now saddled with over $7,000 in debt and tons of leftover inventory that even other consultants won’t buy from me,” one LuLaRoe representative said. “The only positive thing that came out of this experience is some of the awesome women that I met through it all. But I regret everything else.”