LuLaRoe – The Rise and fall
Leggings are often seen as a staple in a women's closet; designed for comfort and warmth. One retailer, LuLaRoe, took them to a whole new level with their brand name spreading like wildfire and becoming a household name. In 2015-2017 you would be hard pressed to find an American woman of any generation who didn't know about the brand and their buzzwords – Butter and popups. Since the inception of the company in 2012, LuLaRoe introduced their products which included skirts, leggings and shirts to the mass market and were expected to be a longtime success story. LuLaRoe founders made some crucial mistakes however, which have left them subject to scrutiny, lawsuits and mass exodus of clientele
Deanna Brady and her spouse, Mark Stidman, founded LuLaRoe in Corona, CA in 2012. Quickly, the company succeeded using their “buttery soft” leggings as its major selling point. The multilevel marketing model (MLM) was used by the company. MLM's are a business model which “involves a pyramid structured network of people who sell a company's products. The participants are usually remunerated on a commission basis” (Pahwa, 2017).
LuLaRoe focused on style, comfort and opportunities for the consultants selling the products. While attending “pop-ups”, the LuLaRoe term for sales, customers were often recruited to be consultants. As current consultants increased the size of their team, they generated more income and sales. In order to start their “business” consultants were required to purchase a predefined inventory, often referred to as their initial investment. This inventory could set a new consultant back anywhere from $4,925 for a 284-piece set to $9,058 for 503 pieces; this is before they even make a single sale (A Look Inside the 2017 Lularoe Onboarding Package, 2017).
In 2015, LuLaRoe began to gain traction which just increased as they decided to add additional items such as skirts, dresses and t-shirts. The consultants who had previously had to host parties and events started realizing the power of social media and a craze began. It seemed instantaneous that there were multiple Facebook groups selling LuLaRoe to friends, family and acquaintances.
It took less than. 2 years for the number of LuLaRoe consultants to increase by more than 70,000 across the United States; most of them choosing to use online formats to market their wares. The overall company revenue was over $1 billion in 2016 and all indications pointed to that growth increasing. LuLaRoe was one of the more exciting MLM opportunities for consultants and many were buying into the trend. Unfortunately, once the initial excitement subsided, these same consultants were left with clothing they didn't want and reduced opportunities to sell the product. The increased number of consultants led to market saturation which was plagued by inventory problems from LuLaRoe.
MLM's are often perceived to have practices that can be seen as unethical and reminiscent of pyramid schemes. LuLaRoe is not above that same criticism; their consultants are expected to work through over saturation, too much competition and up-front purchases, all of which are seen as unethical in the MLM arena.
When LuLaRoe increased their consultant pool from 10,000 to 80,000 nationwide in a few short years, they ensured an overlap amongst consultants. No longer were consultants equally spread throughout the city, state or country; instead they were all over the place competing for the same clients. “The ability of high-volume distributors to generate and sell business support materials at a profit to downline distributors further obscures the path to financial success” (Keep & Vander Nat, 2014, p. 205). The lack of restrictions around consultants' territories, ensured unhealthy competition. Consultants were forced to try and succeed in a ‘dog eat dog' model of business with competition happening in their area. According to Wicker, (2017) “one of the unique facets of this business is that the victims are also perpetrators … when you onboard someone underneath you, especially if they live in your town or are in your friendship group, you are essentially creating a competitor”. This can initially improve sales but will ultimately cause an MLM to fail.
As if the competition wasn't enough, the consultants were stuck with inventory that wasn't selling well, if at all. When a firm is making profits from the sales of their inventory being sold to new consultants they run the risk of being exposed to ethical dilemmas (Muncy, 2004). Sales goals were highlighted as a goal for the consultants and it was encouraged to keep inventory levels up by continuing to purchase more products. Over the company's lifespan, over $400 billion was made in initial inventory sales.
Along with deceptive practices, LuLaRoe was also accused of taxing their clients incorrectly. A class action lawsuit was initiated in January 2017 with the goal of recovering losses from the company. Social media groups dedicated to product dissatisfaction are heavily utilized and the company lost its Better Business Bureau accreditation.
Once fiercely loyal, consultants are leaving the company in droves. LuLaRoe has no buyback program offered (Muncy, 2004); consultants who want to leave found it impossible to sell all their product and instead of receiving help from LuLaRoe were told “you're stale, your customers are stale. Get out and find new customers, if you bring a new customer in then your inventory isn't stale. The problem is you, you try to sell to the same group of people day after day” (Morson, 2017).
The initially coveted brand that was in high demand from customers failed in 2017. LuLaRoe's practices, compensation and policies were not fully transparent to potential consultants so they were unable to make an informed decision. Clients and consultants lost significant time and money as they invested in a company that ultimately was found to operate with unethical practices and bad product lines.
A Look Inside the 2017 Lularoe Onboarding Package. (2017, March 18). Retrieved October 2018, from lulateach.com: http://www.lulateach.com/2017/03/18/2017-lularoe-onboarding-package/
Keep, W. W., & Vander Nat, P. J. (2014). Multilevel marketing and pyramid schemes in the United States: A historical analysis. Journal of Historical Research in Marketing, 6(2), 188-210.
Morson, J. (2017, May 22). LuLaRoe's consultants are furious with the brand. Retrieved October 2018, from Racked: https://www.racked.com/2017/5/22/15640978/lularoes-consultants-unrest
Muncy, J. A. (2004). Ethical issues in multilevel marketing: Is it a legitimate business or just another pyramid scheme. Marketing Education Review, 14(3), 47-53. Retrieved from ftc.gov: https://www.ftc.gov/system/files/documents/public_comments/2006/07/522418-05979.pdf
Pahwa, A. (2017, December 6). What exactly is Network Marketing? MLM explained. Retrieved October 2018, from FEEDOUGH.com: https://www.feedough.com/network-marketing-mlm/
Wicker, A. (2017, August 6). Multilevel-marketing companies like Lularoe are forcing people into debt and psychological crisis. Retrieved October 2018, from Quartz: https://qz.com/1039331/mlms-like-avon-and-lularoe-are-sending-people-into-debt-and-psychological-crisis/
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