LuLaRoe consultant claims she was urged to stop paying bills and pawn her car as she went broke selling leggings
- Some LuLaRoe sellers claim they are going broke
- Sellers also complain that LuLaRoe isn't paying refunds for damaged merchandise
- The company says it doesn't encourage sellers to put their personal finances at risk to sell LuLaRoe
Some LuLaRoe merchants claim they are going broke trying to sell the the company's brightly colored leggings, dresses, and shirts.
Quartz interviewed several sellers, some of whom said they were encouraged to open multiple credit cards and pawn off belongings so they could invest more money in LuLaRoe inventory to help their businesses thrive.
But what the women say they ended up with instead was thousands of dollars of debt.
"I was urged to stop paying my bills to invest in more inventory," one merchant told Quartz. "I was urged to get rid of television. I was urged to pawn my vehicle. I just had to get on anxiety meds over all of it because I've started having panic attacks."
Another seller who opened three credit cards to bulk up on inventory told Quartz: "There was a point in time where I had $8,000 worth of inventory sitting in my home while I was running up to food banks to feed my family. I really feel like I failed my family." Quartz said the sellers it spoke to chose to remain anonymous for fear of retribution from the company.
LuLaRoe encourages its sellers - or consultants, as the the company calls them - to bulk up on inventory to achieve greater success, according to company conference calls. But Justin Lyon, LuLaRoe's chief marketing officer, told Quartz: "Retailers should absolutely never put their personal financial situation at unreasonable risk to establish or operate their retailer business. Period. If any retailer is encouraged to do that, we do not support it."
Some merchants - including one profiled by Business Insider last year - have successfully turned selling LuLaRoe into a six-figure income job.
But as the business has exploded in popularity, the pool of merchants is getting bigger, competition between sellers is getting fiercer, and many merchants are finding it harder and harder to turn a profit. That has led many consultants to get out of the business by selling their inventory at extreme discounts, which is making it even even more difficult for sellers - whom the company calls "consultants" - to succeed.
But now some people are claiming they aren't getting their refunds.
The money LuLaRoe sellers earn
Data obtained by Business Insider in March showed that more than 80% of LuLaRoe's representatives generated less than $5,000 in sales last month, including 10,834 who sold nothing. The average representative sold about $3,387 of LuLaRoe in the month.
LuLaRoe is a private company and does not disclose data on representatives' estimated profit.
The company requires an initial investment of $5,500 in inventory to become a consultant, but according to one estimate, based on figures from a LuLaRoe seller, representatives must invest at least $15,000 in inventory and sell it at a markup of more than 40% to turn a profit.
LuLaRoe disputes this claim.
The company says its consultants can turn a profit on less than $5,000 in monthly sales, and noted that it gets repeated re-orders even from small sellers and has a 90% retention rate among its sellers.
Christina Hinks, 36, of Cary, Illinois, told Business Insider that she got a shipment of 290 products from the company in December and most of the dresses, leggings, and shirts were made out of the same Aztec-printed material. Representatives don't get to select the products they sell.
"I got 290 pieces of redundancy. They must have been on an Aztec kick," she told Business Insider in March. "I'm in Chicago. There's no way I could sell that here."
She said she ended up selling the entire batch of products to another representative on the West Coast, where the Aztec print is more popular.
Where the real money is
The most lucrative route at LuLaRoe is to manage a team of sellers, which is how representatives earn bonuses from the company.
Representatives try to recruit their friends and family to sell LuLaRoe with them, so they can be promoted to the status of team leader - what the company calls "sponsors" - and eventually to even higher leadership positions.
About 17% of LuLaRoe representatives qualified as sponsors - meaning they had at least one other representative under them and sold a minimum of 175 products per month - in 2015, according to a LuLaRoe income disclosure statement. Sponsors earned an average bonus of $4,751 per person that year.
The share of qualifying sponsors fell to roughly 12%, or 8,955 people, in February of this year, according to data reviewed by Business Insider.
Higher levels of leadership come with higher bonuses. So-called "coaches," for example, earned an average bonus of $210,338 in 2015. In February, 284 people out of 77,491 representatives qualified as coaches and 46 people earned the highest rank of "mentor."
Overall, only 13% of representatives were paid bonuses in 2015, according to a LuLaRoe income disclosure statement.
About 71% of those representatives earned an annual bonus of $1,000 or less. Roughly 3% earned bonuses of between $7,500 and $50,000.
So it's possible to make a lot of money selling LuLaRoe, but only a tiny fraction of representatives make it to the top, according to the data available.