LuLaRoe Scam: Is LuLaRoe A Scam?

LuLaRoe is the hottest new MLM company on the block these days. You may have a family member or friend trying to convince you to join this company while it’s skyrocketing in growth. This company is exploding in growth of new consultants and it’s popularity. As this is happening the dark side of this company is showing itself. Over the last year, there have been many complaints from LuLaRoe customers and consultants. In the last couple of months, some of these have developed into lawsuits. Is the LuLaRoe Scam real? Or is it just a bad rap? The real question is should you join as a LuLaRoe Consultant? I’ll answer these question below.

History

LuLaRoe was founded in late 2012 by Deanne Stidman and her husband Mark. Currently, Mark is the CEO of the company. Deanne had previously worked in multi-level marketing but I couldn’t find which company she represented.

According to Business Insider, LuLaRoe has skyrocketed in growth recently. In September 2016, they had 38,277 consultants and in February 2017 they had 77,491 consultants.

According to Forbes, LuLaRoe was going to achieve $1 Billion in sales in 2016.

This company is only about 4 years old, growing rapidly and at the Billion dollar mark in sales. Could LuLaRoe really be a scam? Let’s check out it’s products.

Products

LuLaRoe sells a clothing product line. The clothing was referred to in one article as Boutique style clothing. LuLaRoe is well know for their leggings but also sells a variety of skirts, knits, dresses, etc. They offer a variety of colorful patterns that are produce in a limited amount of each pattern so that the clothes being sold are very unique.

The clothing is made in many different countries to include China, Vietnam, Guatemala. They are open about where the products are made so there is no issue with the international nature of their products. The problem is that the products are of low quality. There are complaints that there is no standardized sizing. So for one LuLaRoe product you may need a small but another LuLaRoe product you may need an extra large. You don’t want to buy anything without trying it on first.

There are also many complaints about the material being used is extremely thin. Therefore, the clothing tears or wears out easily. The quality is at the point where there are lawsuits against the company about the leggings being sold with holes in them. We’ll discuss the lawsuits more in the legal section below.

The popularity of this new company is it’s colorful unique boutique style clothing but the low quality of that clothing is also the source of many complaints. The explosive growth of LuLaRoe may have contributed to the low quality products. Only time will tell if they improve the quality of the products but a low quality product could ruin LuLaRoe’s reputation faster than they may be able to recover the product quality.

Update: I recently went to a garage sale event at my daughter’s high school. There were at least 10 LuLaRoe consultants there selling their products. So it was a chance to see the product first hand. Personally, it’s some of the ugliest clothing that I’ve ever seen. I’m completely baffled on the popularity of this product line. I looked at the material and it was thin but I’m no expert so I can’t say it was too thin. It had no obvious holes. My wife and daughter also had no interest in anything they had to offer.

MLM

LuLaRoe is a Mult-level marketing (MLM) company based in Corona, CA. When you join LuLaRoe, you’ll become a fashion consultant and will sell the LuLaRoe clothing line. This is done primarily with home parties to family and friends. You purchase the clothing at wholesale prices and sell them at a marked up retail price.

With LuLaRoe, you are basically starting your own in home clothing store. You purchase your inventory of clothing you are going to try to sell. Yes, you need to upfront the cost to buy all your products before you attempt to sell them. To become a consultant you’re required to purchase $5,000 to $6,000 in the start up package of inventory. They’ll recommend that you purchase up to $15,000 of inventory to start. They use this upfront cost to legitimize themselves as a business i.e. a real clothing store has to buy inventory upfront so they must be legit.

This is a large upfront payment and it does make people feel like they are investing in a real business. But there is a problem which is the same as any real clothing store. What does the consultant do with the clothing that they can not sell? There are mixed reviews on being able to get refunds from LuLaRoe on this inventory. Most of the reviews are that consultants can’t get their money back so it’s a loss for them.

As a MLM company, LuLaRoe consultants receive a commission on the sales of the people that they have recruited. Great, right? Not so much. To be eligible for the bonuses and commissions, a consultant needs to have achieved a specific level of sales themselves. As we’ll see in the income disclosure statement below, the vast majority of the consultants are unable to achieve these sale levels thus losing the bonuses and commissions.

Every MLM has a compensation on how you earn money from those you have recruited, let’s check it out:

Compensation Plan

I could not find an official LuLaRoe Compensation Plan published on their website. It’s always concerning to me when a company doesn’t want the whole world to see their compensation plan. There must be something about it that they don’t want us to see without them being able to provide their spin on it.

I did find the compensation plan on a website that is promoting LuLaRoe. Since this plan matches what I’ve read in other publications, I going with the fact that this is the legit LuLaRoe compensation plan. The problem with a third party website is that they probable will not update whenever LuLaRoe updates its compensation plan so it could already be out of date.

The LuLaRoe Complensation Plan first level is the Fashion Consultant/Sponsor where you earn a 5% override bonus based on the amount spent by your personally sponsored consultants. In order to earn this bonus you must personally sell 175 pieces of clothing.

Okay, what does that mean for your pocket book? It appears that LuLaRoe clothing cost ranges from $20 to $70. So, 175 pieces will cost from $3,500 to $12,250.  Remember, you need to purchase all the inventory before you can sell it. Then you have to mark up the prices in order to profit. You need to be selling a significant amount of inventory to be eligible for the 5% override bonus.

The second level is the trainer. At this level you get a 5% override bonus on those you personally sponsored and 3% override bonus on the purchases of the consultants sponsored by your sponsored consultants. Awesome with a large team, you could be earning big money with all those 5% and 3% bonuses. Right?

To get those trainer bonuses, you need to meet the eligibility requirements. First, you must have 3 personally sponsored consultants and a total of 10 consultants within your team. Second, you must have personally purchased 250 pieces of clothing. Third, your 3 personally sponsored consultants need to have purchased 175 pieces each. Fourth, your team needs to have purchased 1,750 pieces.

Let’s take a look at the cost of those purchases. First, you need to personally purchase 250 pieces at $20 to $70 per piece. So the totally cost is from $5,000 to $17,500. Second, your team needs to purchase 1,750 pieces for a cost of $35,000 to $122,500.  That is a significant amount of clothing to be sold.

There are several more levels in the compensation plan. The eligibility requirements continues to grow with each level. You can see from these first two levels how hard it is to meet the eligibility. Rather than looking at the higher levels, let’s move on to the Income Disclosure Statement and see the impact of these eligibility requirements on what people are actually earning.

Income Disclosure Statement

LuLaRoe does provide an Income Disclosure Statement on their website. Check out the Income Disclosure Statement here. As is usual with MLM companies, you need to carefully read these statements.

In the first paragraph, LuLaRoe says that this Income Disclosure Statement does not include what the consultants make on retail sales. Remember that LuLaRoe sells their products to the consultants upfront. If the consultants does or does not sell the product is the problem of the consultant and not LuLaRoe. Plus, the consultant marks up the products so how much they do earn is up to the consultant.

Let’s skip down a couple of paragraphs where they discuss the number of consultants who were ineligible for the override bonuses. 78.43% of consultants were ineligible for the bonuses. So, only 21.57% of consultants were able to meet the eligibility requirements listed above.

Looking at Table 1, of the eligible consultants 79.49% are at the first level and earning on average $4,751.73 in bonuses in 2015. Also important to note that less that 1% of consultants were able to achieve the higher 2 levels.

Couple more important things to note in the tables. In Table 2, note that 87.04% of all consultants did not receive a bonus. In Table 3, note that more than 50% of those that did receive a bonus received less that $5oo per month. Only 7.3 percent of the eligible consultants received more than $5,000 per month in bonuses.

Legal Issues

LuLaRoe has run into some legal issues which has gotten people screaming LuLaRoe scam.

CBS News has reported that on February 17, 2017 a lawsuit was filed against LuLaRoe about overcharging on sales tax. According to the lawsuit, LuLaRoe Consultants are required to use the LuLaRoe Point Of Sale system for processing their sales. In this system, the customer is charged sales tax based on the location of the LuLaRoe Consultant and not on the location of the customer. So if the consultant is located in a state with sales tax and the customer is not, the customer is charged the sales tax.

A large number of LuLaRoe customers have filed complaints with the Better Business Bureau. LuLaRoe currently has 519 reviews along with 222 complaints earning them an F rating with the Better Business Bureau.

This CBS News article reports of 2 new lawsuits against LuLaRoe. On March 23, 2017 a lawsuit was filed claiming that LuLaRoe has been selling their leggings product knowing that the product is defective. There has been many complaints from customers and consultants that the leggings had holes or would develop holes within hours of use.

The CBS News article also notes that Complete Merchant Services (CMS) has filed a lawsuit against LuLaRoe. CMS has a contract with LuLaRoe as the exclusive credit card processor for the LuLaRoe Point Of Sale processing system. CMS claims LuLaRoe has violated the contract.

Is The LuLaRoe Scam Real?

Right now, it sure looks like a LuLaRoe Scam. With the recent lawsuits, the poor product quality that results in a lawsuit, the crazy eligibility requirements for bonuses, the high up-front cost to get in, all add up to nothing good.

Everything I just listed should be enough to keep you away from this company. Yet, I have not even touched on the whole home party idea behind this company. LuLaRoe focuses on stay at home moms with their home party concepts. This concept is to get the potential consultant recruit thinking this is going to be fun and easy. Oh yeah, you can invite friends and family over for a party.

Sounds fun doesn’t it. Unless you have an extra ordinary number of friends and family, you are going to quickly run out of people to purchase your products. If you continue to push your products on your friends and family, you’ll lose a number of friends in the process.

With LuLaRoe, you needed to sell 175 pieces of clothing to become eligible for the bonuses. Will your family plus your friends, all need 175 pieces of new clothing every month? If you recruit your family and friends as consultants, now they need to sell their own 175 pieces.  This means they are no longer buying from you so you need to sell to someone else. Who?

There Must Be Better Options Out There

Fortunately, there are many better options available than joining an MLM like the LuLaRoe Scam. If you want to sell clothing or any other product, you can do so without the up-front inventory cost. Affiliate marketing allows you to sell any product with a lot less risk than LuLaRoe. Most every brand now has an affiliate program. With an affiliate program, you receive a commission for every product that you sell. You don’t have to worry about inventory. The company handles shipping, payments, sales taxes, etc. You don’t even need to sell.  All you need to do is get the potential customer to the website to make the purchase.

To get into affiliate marketing, you’ll need to learn a few new skills. There are many training programs online that’ll show you everything that you’ll need to start earning money in affiliate marketing. Some of the programs are very good and some are scams. The program that I recommend is Wealthy Affiliate. They provide step-by-step training, a community of like mined people who help each other out and provide support. Best of all, they provide a free no risk (no credit card required) sneak peak into the program. Check out my Wealthy Affiliate Review where I provide many more details about the programs.