The Lularoe pyramid scheme is one of 2017’s most talked about MLM scams.
The clothing line, Lularoe has been under the scanner lately.
There have been claims that it is a pyramid scheme.
Moreover, the quality of clothes has also been discussed.
The allegation is that this company sells overpriced goods that are of inferior quality.
That further exacerbates the problem.
A quick search on the internet will highlight innumerable testimonials of dissatisfied clients.
Starting from customers to members, the list of those dissatisfied is pretty long.
Most members claim that association with the brand led to huge personal debt.
Finally, a $1 billion lawsuit was filed against the company.
The primary claim is that this company is running a vibrant and active pyramid scheme.
What makes it worse is that you have a battery of housewives heavily invested in this.
So, if this is really a pyramid scheme and comes crashing down, it can wreak havoc.
The $1 billion lawsuit is undeniably one of the largest to be filed thus far.
However, this is not the first time that it has been filed against the company.
There have also been claims of its representatives collecting sales tax in states that don’t have the tax.
Moreover, in May last year, a sudden change in their return policy led to serious losses for consultants.
Like many other MLM, they clocked a sharp growth in initial years.
The founders claim that the company was created to facilitate economic freedom.
However, in reality, it is debt that has been mounting over the years.
The high starting cost and the subsequent expenses have even led many women to sell their breast milk.
Here are more details about Lularoe pyramid scheme.
The Lularoe Pyramid Scheme Inside Story
As we set about analyzing claims of Lularoe pyramid scheme, let us analyze the management view.
The founder, DeAnne Stidham says that this company was created to provide economic freedom to women.
Though just 5 years in business, Lularoe has clocked phenomenal growth.
They sell a line of dresses, tops and their very famous leggings.
We can gauge the popularity of the company by the fact that they now have about 80,000 consultants.
The management led by CEO, Mark Stidham seem rather stoical about the claims and lawsuits.
According to insiders, most of the communication with the staff seems condescending.
There are many references of an online video address in which he chides the consultants for selling to the same set of customers.
He chides them and prods them to keep adding fresh customers every day.
The wave of complaints about the policies too seems to have been brushed under the carpet.
The general approach seems to be whoever is complaining; it is their problem.
The business model has several loopholes.
Online reviews indicate claims of profitability, especially at the lower end is non-existent.
In fact, according to FTC study, almost 99% of people who joined the enterprise are losing money.
That is now a worrying thought for anyone who is planning to join the organization.
The average cost of joining is close to $5000-7500 per person.
So that is quite a significant investment in an organization that has no precedent of profit.
The overall profit margins for the company may be decent.
According to the study by some independent organizations, less than 5% consultants managed $10,000 sales.
As many as 70% of the consultants sold goods worth less than $5000.
With a starting investment of $5000, this is not even helping in recovering the cost.
The Lularoe Pyramid Scheme Product Line
Before any discussion about Lularoe pyramid scheme, consider their product lineup.
That is, after all, the reason why it counts as an MLM and not a pyramid scheme.
After all, a multi-level marketing unit always has a genuine product line-up.
The sale of the product comprises a significant part of their revenue.
This is a basic difference between a MLM and a pyramid scheme.
In this context, Lularoe specializes in creating outfits for women and children.
Their product line for women includes
For the kids too, Lularoe has a rather extensive line of offerings.
But you cannot buy these products off the counter or even online.
You can only buy these through the multi-level marketing network.
But then again, unlike retail customers, you can never buy one or two.
You have to only buy in bulk, in wholesale quantities.
So you can then sell the products after buying from them.
The variety and the cut of their products are what woos customers to start with.
Almost always, that is the first reason that people agree to start as consultants.
Their line of leggings especially is a big craze in a segment of the society.
There is a continuous demand for it.
But there is something unique about the trend for their product demand.
The number of first-timers who buy these Lularoe products is much higher.
But the relative rise in return customers is significantly lower.
That again makes you reconsider their operation module.
The products can be expensive, but the quality is crucial.
Let’s see how Amway works.
The world over there are many who may look at Amway as a scam.
But that said, you cannot deny their superior products.
As a result, you have a continuous flow of reliable and loyal customers.
The Lularoe Pyramid Scheme Product Concerns
That is undeniably the key concern for most Lularoe products.
The quality of the products has been consistently bad.
Reports started pouring in from all over the world about the poor standards.
In fact, it has been considered so bad that the US Better Business even downgraded their quality rating.
Lularoe’s quality rating slipped to F given the complaints from all over.
However, that said, there was a consistent flow of new customers buying the product.
Certain times, the associated benefits also spurred demand.
How else can you justify the demand for new items delivered with holes?
At other times, clothes would tear the moment they are worn or washed,
That emphasized the poor quality of the base material that they used.
What was even more appalling was the Lularoe response.
They never apologized for the poor quality of clothes they made.
Instead, the company trained its consultants to teach customers how to wear them correctly.
The line of argument was very simple; if the clothes tore, it was because they didn’t know how to wear it properly.
The Lularoe consultants patiently explained what is wrong in your approach.
As though that was not annoying enough, they also have a lengthy cleaning instruction.
The idea is Lularoe is creating a set standard of product.
But ineffective care from your end is worsening the clothes condition.
Their cleaning instruction includes standard care procedures like
- Wash the clothes separately in cold water
- Keep the Lularoe clothes in a separate basket
- Turn clothes inside out before putting them to wash.
- Do not wash Lularoe with any other clothes.
- Do not put Lulroe clothes in a dryer
The list of these instructions just did not end.
They seemed unending, and all geared towards how you have to care for them.
Lularoe Heroes Poor Quality
What is really surprising is how the company managed demand despite this type of poor quality.
For every hole they found in any outfit, it was about either customers wore them incorrectly or washed them wrong.
But that cannot hide the fact that these clothes are consistently bad.
The manufacturing quality is inferior.
But despite that, people seemed to still want to sign for the Lularoe scheme.
They even got friends and family to sign along with them.
But I think this is also a factor that raised consistent alarm bells.
They surely have a product to talk home about.
But why are they churning out consistently bad quality products?
Moreover, the company seems more than reluctant about improving their quality.
Instead, they are more than happy about shifting the blame.
That undeniably raises key questions about their overall business model.
An MLM that seems to further business through direct promotion is not interested in fixing quality.
They are more than keen on continuing with the same type of sub-standard quality.
They are operating with an F rating and quite happily passing on the blame to customers.
The approach that if you got holes in them, then you are not wearing it correctly is annoying.
More than that, it highlights their lack of commitment to creating a better quality product.
So this too spurs worries about a potential pyramid scheme in making.
They have overpriced the product and compromised with the quality.
They are constantly pushing consultants to get new customers.
The line of argument is obvious.
If one set of customers is complaining, they better look for a different customer base.
It is interesting how there is no recorded acceptance of their poor quality.
The Lularoe Pyramid Scheme Business Model
But the question is how long you can fool customers with inferior products?
At some point of time, this will unravel itself.
As a result, it puts the spotlight directly on the Lularoe business model.
It becomes even more imperative to study how they conduct business.
The packages that they offer and how they convince consultants about earning money.
That will, after all, highlight how committed they are about the business.
The question that got me started is are they in the business for inclusive growth.
The company’s mission statement may boast about that, but in reality, the results still need to be seen.
Evidence of any type of conviction in helping others grow is quite minuscule.
In fact, as most surveys indicate that only a small percentage of consultants had made meaningful sales.
Moreover, how is a company that claims to bring about financial freedom compensating clients?
The consultants seemed to have booked deep losses as a result of the company’s policies.
Given the recent changes in their return policies, there were considerable losses.
Consultants had nowhere to look for any kind of grievance redressal.
Most are so deeply invested in the Lularoe story that it is difficult to extricate themselves.
There is this constant urge to try and even out or average out the losses.
The poor quality of the clothes, however, impedes any meaningful sale for a sustained period.
Sustainability is the primary concern at this juncture for the Lularoe consultants.
That in many ways has been the key trigger for recent lawsuits.
The Lularoe Pyramid Scheme Compensation Package
That brings us to the point about how do you go about getting started with the company.
Though on the face of it this is a thriving MLM, why is it courting controversy?
Perhaps the devil about a potential pyramid scheme is in the details.
Your start-up cost to get started with Lularoe is anywhere between $5000-6000.
You can even spend as much as $7500 in certain cases.
So though this program promises to offer you financial freedom, it does not come free.
This is not a zero investment business venture.
You need a sizeable amount of money to get started here.
Moreover, there are no online openings for this.
You have to buy clothes in bulk and then sell them directly.
You do not have an opportunity to undertake affiliate marketing.
Nor can you look to add to your earnings in any other way.
Most online testimonials indicate that Lularoe has three primary types of packages.
- Package 1: 336 items for nearly $5000
- Package 2: 365 items for over $5300
- Package 3: 463 items for nearly $7000
But unlike in other MLM, you cannot buy as per customer demand.
You have to buy any of these packages and then look for customers to sell.
But the deal keeps getting more complicated at this juncture.
The consultants may be paying money for it, but they have no say.
They do not get to choose the pattern, sizes or colors.
So it is quite possible that you get products that do not fit the demographics that you cater to.
The question is then what do you do.
You are saddled with the package and have to look at ways to sell it.
Is Lularoe Pyramid Scheme Worth Your Time?
You have to buy at least 33 new items every month.
Only then, you can maintain the status of an active consultant.
You can argue that probably this initial investment is much lesser than many others.
But then what anybody will be worried is why you will want to go ahead with this type of investment?
You are paying a reasonably large amount.
You have to keep paying the same amount.
But you can still not decide what color or size of clothes that you want.
The Lularoe team will decide it and give you.
If you ask me, isn’t this a kind of forceful selling.
That too when you are looking to gain financial freedom through this sale.
That is what makes the deal even weirder for anyone.
Instead of achieving any type of meaningful advantage, they are getting into debt.
There is just about no mention of how Lularoe consultants will deal with unsold goods.
That, in many ways, becomes a major liability for most who sign up for Lularoe.
User Testimonials of Lularoe Pyramid Schem
Even by keying in the simple name of the company, you will be appalled by the kind of results on Google.
The very mention of Lularoe brings about tonnes of reviews about bad products.
There are many dissatisfied customers who have voiced their concern about bad compensation terms.
Most importantly there seems to be no option for consultants to get redressal.
Online reviews indicate that once you are stuck with the products, you are stuck for good
The question is why is there still a huge battery of consultants ready to take a plunge?
Often they are being approached by those who are stuck.
Moreover, everyone is looking at some ways to recover some amount of the money they have put in.
That is why you still see many gungho Facebook mentions about Lularoe.
When you discuss financial freedom with Lularoe pyramid scheme, I have a simple proposition.
If you really have about $5000-6000 every month, calculate the interest if you make a basic Fixed deposit.
I am not even suggesting any complicated investment channel.
All you have to do is put it in your savings account and enjoy the interest.
Even then you will get a minimum 10% of the money you are putting in.
Then why will you want to get stuck with Lularoe pyramid scheme?
The jury is still out whether it is an MLM or a pyramid scheme.
But the fact is you cannot make money with Lularoe.