LuLaRoe is facing mounting debt, layoffs, and an exodus of top sellers, and sources say the $2.3 billion legging empire could be imploding
- LuLaRoe is a multilevel-marketing company that generated $2.3 billion in sales in 2017. It made its name producing limited quantities of brightly patterned clothing and selling it, sight unseen, to "consultants." These consultants turn around and sell the clothes direct to consumer, often to friends and family at house parties and over social media.
- Some consultants have made $80,000 a month, but over the past 18 months tens of thousands of sellers have left the company. That includes one-third of LuLaRoe's top performers, who have exited since July, according to data reviewed by Business Insider.
- Some who left say they've been waiting months for refund checks. "We are barely scraping by," said former LuLaRoe seller Merilisse Beyelia. She claims LuLaRoe owes her $7,000 and that she's struggling to afford diapers for her disabled children.
- LuLaRoe said in a filing that it laid off 127 people from one of its two distribution centers in June. And sources claim the company is overdue on payments to suppliers.
- LuLaRoe founder DeAnne Stidham insists publicly in Instagram videos that everything is fine. She urges sellers to trust her and to buy more goods, according to several hours of recordings viewed by Business Insider as recently as late October.
LuLaRoe catapulted from near obscurity into a $2.3 billion company in just four years off the backs of tens of thousands of people who sold its stretchy pants, shirts, and dresses mainly through Facebook.
Amid the success, LuLaRoe founder DeAnne Stidham flaunted her wealth on Instagram. She posted photos and videos of herself on cruises in the Caribbean, flying in private jets, posing next to her husband's expensive cars, and riding horses during visits to her $7 million ranch in Wyoming.
Behind the scenes, Stidham took LuLaRoe's most successful sellers - called "consultants" - on shopping trips to Versace and Gucci stores. She told them to "buy nice cars, buy big houses, and show people what it can be like if we're successful," according to one recent LuLaRoe consultant who attended the shopping trips.
Sources told Business Insider that they understood her social-media posts and advice to LuLaRoe's top leaders as conveying an implicit promise to the company's army of consultants: Invest enough in LuLaRoe, and DeAnne's lifestyle could be yours, too.
For some consultants, the money came. A few earned upwards of $80,000 a month.
"It's actually been pretty awesome," said Jamie Harrington, a high-ranking LuLaRoe consultant with the title of "mentor." "We've sold a lot of clothes. We've done everything we've set out to do."
Thousands of others reached deep, sometimes into debt, in hopes of achieving the same rewards. These people directly fund the company. They include stay-at-home moms, single women, and people with limited mobility who were attracted to the idea of running a business out of their homes.
Now, the company is facing mounting problems, and there are thousands of consultants suffering.
Beth Mason, of Colliers, West Virginia, has an entire spare bedroom in her home filled with LuLaRoe clothing she can't sell.
When her sister unexpectedly died, in July, Mason decided to exit the LuLaRoe business and return the clothes to get some of her money back. For over a month, Mason said, the LuLaRoe site that processes inventory returns was down, preventing her from returning the clothes, before becoming operative again last week. She believes LuLaRoe owes her $4,500.
If other consultants' experience is any indication, Mason might have to wait months to get a refund after she returns the clothes.
Hundreds of LuLaRoe sellers have said they've been waiting months, some more than a year, for refund checks after exiting the business. Now, speculation is swirling among these sellers that the cause of the refund delays is simply that LuLaRoe does not have the money to pay back the tens of thousands of people who have recently left the business, according to discussions among current and former consultants in private online forums with several thousand members.
A Business Insider investigation involving interviews with more than two-dozen current and former consultants in the past two months has revealed evidence that suggests LuLaRoe's business is in peril.
The privately held company releases little information about its operations, but a top LuLaRoe leader told us that she knew of two teams of sellers that had shrunk by roughly two thirds from their peak. She estimated that LuLaRoe now has fewer than 25,000 consultants, down from the more than 77,000 it had in February 2017.
Among those fleeing are many of LuLaRoe's highest-performing consultants, which include its top 100 sellers and several dozen mentors who managed teams of thousands of women. About one-third of these top performers - some of whom were earning upwards of $80,000 monthly at the peak of their business - have exited LuLaRoe since July, according to data we reviewed.
Meanwhile, LuLaRoe said in a filing with the state of California that it had laid off 127 people from one of its two distribution centers in June. Sources claim the company is overdue on payments to suppliers. And, according to an Experian report, the company has several bills past due, including a $1,700 manufacturing payment that's more than 91 days late.
The company also lost its head of design and production, Patrick Winget, in September, and it's facing mounting complaints about out-of-stock problems and quality issues with its clothing. The exodus of sellers and the volume of inventory returns are creating unprecedented internal tension, insiders said.
"They always advertise that they are a billion-dollar company," a recent high-ranking consultant, who spoke on the condition of anonymity for fear of retribution, told Business Insider. "Well, that billion dollars in goods they've sold, people don't want it. They are trying to return it all right now."
Six LuLaRoe representatives, including Stidham and her husband, Mark, who is also LuLaRoe's CEO, did not respond to calls and emails seeking comment.
LuLaRoe became a $2.3 billion business in less than 5 years, promising 'full-time income for part-time work'
LuLaRoe began with Deanne Stidham and her sisters sewing maxi skirts around her kitchen table for her daughter's friends. Stidham and her husband, Mark, turned the hobby into a business in 2013. They produced limited quantities of brightly patterned clothing and sold it at wholesale prices, sight-unseen, to sellers, called consultants, who turned around and sold it to friends and family.
The company's comfortable, stretchy clothing and recruitment promise of "full-time income" for "part-time work" appealed particularly to three main contingencies of women: stay-at-home moms, single women, and people with both mental and physical disabilities, many of whom had limited mobility, recent and former consultants told Business Insider.
Initially, most sales were conducted at pop-up parties in people's homes. Then sellers realized how many more people they could reach on Facebook, and they started selling the clothing online.
Suddenly, there was a lot of money to be made selling LuLaRoe. Some successful sellers and team leaders started advertising on social media that they were earning five-figure bonus checks on a monthly basis selling LuLaRoe, and interest in the company skyrocketed.
In late 2016, LuLaRoe was onboarding thousands of new consultants - mostly women - every month, according to data obtained by Business Insider. To start their businesses, these women invested upwards of $5,000 in inventory.
As LuLaRoe's top leaders, called mentors, aggressively recruited new sellers, they encouraged them to buy as much inventory as possible, former consultants said. Those leaders were incentivized to do this because for years their bonus checks were based in part on how much their teams bought wholesale from LuLaRoe. (This bonus structure was later changed. A standard created by case law in the 1970s, known as the Koscot standard, considers whether a multilevel-marketing company bases compensation on inventory purchased versus items sold as part of its analysis of whether it has an unlawful compensation structure.)
If sellers didn't have the money to buy more inventory, LuLaRoe leaders in some cases encouraged them to take out loans and credit cards for their LuLaRoe businesses, current and former consultants said.
"Mentors encouraged people to take out second mortgages; mentors encouraged people to cash out their 401(k)s or take loans out on their 401(k)s; mentors encouraged women to sell their breast milk, and then buy everything on low-interest credit cards," RJ Franks, a former consultant, said.
Several women said they followed leaders' instructions to rapidly expand their inventories, and they poured money into buying hundreds of LuLaRoe leggings, dresses, and T-shirts. This helped fuel remarkable growth for LuLaRoe.
"They really drove retailers to buy, buy, buy, buy, buy as much as you can," Merilisse Beyelia, a stay-at-home mother to two disabled children, said. "They said you can take out a personal loan, and you can put it on credit cards. So I did that."
In 2017, just four years after it was founded, the company said it generated $2.3 billion in sales.
Then came LuLaRoe's first major public stumble.
LuLaRoe stumbled when customers complained about pants that 'rip like wet toilet paper'
A 2017 Business Insider report revealed widespread quality complaints about its clothing, including claims that its pants develop holes quickly and "rip like wet toilet paper." After that report LuLaRoe launched a refund program for customers that was intended to make it easier for customers to get refunds, credits, or exchanges for purchases.
Suddenly, the company was stuck with damaged inventory it couldn't sell, sources said. About the same time a growing number of consultants started complaining that they couldn't even sell the undamaged clothing that LuLaRoe was sending them because the patterns were undesirable and customers were losing interest.
"I kept getting horrible stuff from the warehouse … and the quality started tanking," said Emily Wright, a stay-at-home-mom and military wife who decided in October to close her LuLaRoe business after sinking more than $11,000 of her family's savings into it. "It's hard to sell something to someone when you know it could fall apart after one washing."
Several consultants claimed they received items with issues, such as uneven hems, one armhole higher than the other, ripped-open seams, and visible mold on the clothing.
"It made my entire room smell - it was disgusting," said one former consultant, who asked to be identified only by her initials, K.W. "I was trying to Febreze the clothes before selling them."
Savanah Quirion, another former consultant, said she wanted to quit selling LuLaRoe for months but felt pressured by her "sponsor" - another consultant who trained her - to press on.
"I could never get ahold of anything that was going to sell," Quirion said. "I was getting these awful ugly prints that were impossible to unload. All throughout this, all I kept hearing from the company was buy more stuff ... just buy more stuff ... you'll have more luck and be fine."
Following the advice of her sponsor, she tried to take out a loan to fund more clothing, but the bank denied her. She ended up getting a loan from a friend.
Ultimately, thousands of consultants began fleeing the business. As they sent their unsold inventory back to LuLaRoe for a refund, the company's cache of unsold inventory and debt in the form of unpaid refunds ballooned.
In late 2017, LuLaRoe changed its 100% buyback policy. The policy said the company would provide sellers leaving the business with a 100% refund for all their unsold inventory. Some sellers who spoke with Business Insider cited this guarantee as a key reason why they took a chance on joining LuLaRoe.
LuLaRoe's new buyback policy, the company said, would apply only to inventory purchased within the previous 12 months, and LuLaRoe would refund just 90% of the wholesale value of those goods.
Many consultants were furious about the change, according to Derryl Trujillo, who spent more than a year working in LuLaRoe's corporate offices. The company's service department was "bombarded" with calls from women planning to go out of business as well as those who had already jumped ship and were waiting on refunds, he said.
Trujillo said he spent many hours in the company's service department taking calls from women pleading for money they were owed by LuLaRoe. The company's top brass wouldn't give him any answers as to why the refunds were delayed for months on end, he added.
"There was one call in particular - after string of 20 in a row - that made me sick to my stomach," Trujillo said. A woman on the line was begging for the refund because she needed to make a mortgage payment.
"I logged out of the system, ran to fourth-floor bathroom, and locked myself in a stall for 15 minutes," he said. "I resolved never to come back there again."
Around this time, lawsuits started piling up against LuLaRoe, attacking its business practices and accusing the company of copyright infringement for the patterns displayed on its clothing. Two copyright suits have been settled; three others remain open. One suit, which accused LuLaRoe of being a pyramid scheme, is in arbitration.
Consultants started struggling to sell LuLaRoe clothing, which led to an emergency meeting and a call about 'horrific' clothing
LuLaRoe's top performers were summoned to Phoenix for an emergency meeting in the summer of 2016. They had 48 hours to get there.
At the meeting, LuLaRoe's founders, DeAnne and Mark Stidham, said they were seeing signs of a slowdown in profitability among new consultants.
"They told us that they are watching the classes of people that sign up every month, and people were becoming profitable less quickly," said one person who attended the meeting. The Stidhams asked for input on what was going on, and wanted to brainstorm ways to improve profitability.
Almost exactly two years later, in August 2018, the profitability problems had infiltrated even top sellers, and the issue had reached a boiling point.
Mark Stidham had a call with the company's highest-performing sellers, and it turned contentious.
Stidham told sellers to "charity out" prints that wouldn't sell - in other words, they should give them away free or at a discount. Three sellers described Stidham as "yelling" on the call.
"So we pay full price to you but have to donate and discount?" one seller asked in a live online chat with others on the call, according to a transcript of the discussion reviewed by Business Insider.
Some sellers called the clothing prints "horrific" and "ugly" and said business was in "decline" and "getting worse and worse."
"Our teams are leaving," one person said. "They can't keep taking hit after hit."
Another added: "We are being blunt because we are truly concerned. We care, our lives our built on this company. And we are scared. Truly worried and these answers are a slap in the face."
Over the next several months, several of the people on the call quit the business.
LuLaRoe's founder has been accused of 'flaunting her wealth in the faces of the people in the bread line'
As the company's top performers flee in droves, LuLaRoe founder DeAnne Stidham has insisted publicly at meetings with consultants and in Instagram live videos that everything is fine. She urges sellers to trust her and to buy more goods, according to several hours of recordings viewed by Business Insider.
"Don't hang on to your money," she said in a video in August that encouraged people to buy more inventory and promised "exciting" things to come.
Stidham has made vague promises about new products in the pipeline in response to sellers' concerns about inventory shortages.
"There's some new things coming," she said in late October. "We just saw a great big thing. Everybody's so excited."
In the same video, she chalked up the speculation surrounding LuLaRoe's business to the work of "trolls."
"We all get hit by the trolls and you know what, we're going to stop it," she said.
One person close to Stidham accused her of being out of touch with reality.
"Deanne is Marie Antoinette telling people to eat cake. Right now she is on a cruise, flaunting her wealth in the faces of the people in the bread line," the person said, referring to a recent video that Stidham had posted from the Caribbean island of St. Kitts.
A lawsuit filed against the company last year, which is in arbitration, alleged that, with LuLaRoe's riches, DeAnne and her husband, Mark, have "lavished themselves with millions of dollars in luxuries such as expensive international vacations and exotic supercars."
Attorneys representing the Stidhams denied the allegations, writing, "LLR's success is built on tremendous demand by the consumers who buy its products."
Mark Stidham owns a collection of expensive cars, including a rare Koenigsegg Agera RS, which, in 2017, set a record to become the world's fastest car. It is estimated to cost more than $2 million, according to the suit. Stidham has displayed his cars at company events, according to former consultants.
"Mark would line up his luxury cars on the premises where they were having conferences, for people to see and gawk at," said a former consultant who asked to be identified only by her initials, E.M.
The couple also frequently travels in a private Gulfstream G550 jet and owns a sprawling 250-acre ranch near Jackson Hole, Wyoming, estimated to be worth more than $7 million.
High-ranking LuLaRoe leaders were encouraged to show off their wealth on social media with the hashtag #becauseoflularoe. The strategy worked, according to several consultants.
"All the little fish would follow the big sellers like they were celebrities," E.M. said. These top sellers showed off their "lavish lifestyles" involving frequent vacations, personal assistants, and new homes, primarily on Facebook and Instagram, she said.
Quirion said she felt duped by this display.
"We listened to the consultants who were so successful, that they were going on vacations with their kids every other month," she said. "They just kept saying to us if your don't like your inventory, buy more to change it up and you can sell that."
Now consultants are worried they may never get their refunds
Meanwhile, former consultants like Mason say they are growing increasingly worried that they may never see their refunds.
"I'm terrified there's a possibility that they could [go] bankrupt and I don't get my money," Mason said.
According to sources, dozens of consultants are giving up on seeking refunds from LuLaRoe and trying to sell their goods to consignment shops and liquidators at steep discounts.
"We lost our life savings," said former consultant Amy Lyrio-Takis. "I am in the hospital with a broken hip and had to have my children buy the medical equipment needed for my discharge."
Another consultant, who asked to be identified only by her first name, Saskia, said she's $20,000 in debt after quitting selling LuLaRoe.
"My mistake was I listened to everybody," she said. "They kept telling you if you buy more you sell more."
At least 70 people associated with LuLaRoe have filed for personal bankruptcy in the past two years, according to court filings. Jill Domme is one of them. In April 2017 she bought a brand-new Toyota RAV4 with the money she was making selling LuLaRoe. LuLaRoe leaders encouraged her to post pictures of it on Facebook and use it as a recruitment tool, she said.
Months later sales dried up. Domme's RAV4 was repossessed in April.
She's now working full time and has picked up a second part-time job on nights and weekends to pay for her bankruptcy attorney.
Beyelia, the stay-at-home mother to two disabled children, said LuLaRoe has owed her a check worth more than $7,000 since December 2017, when she returned her unsold inventory to the company.
Her husband called LuLaRoe in August to beg for the check ahead of their 16-year-old son's latest surgery related to the rare genetic disorder Angelman syndrome, which afflicts both of their children. The company refused to tell him when it would release their check, the couple said.
"We are barely scraping by," Beyelia said of her family's financial situation. "After their surgeries, they are in diapers full time because they are immobile, and we can barely buy diapers for them because it's so expensive to buy adult diapers."
She told Business Insider she needs to buy things for her children that insurance doesn't cover, such as a seat attachment that helps her 13-year-old daughter lower herself onto the toilet and a bench for their shower.
"We shouldn't have to be worrying about buying those things when there is this check for $7,000 that's out there," she said. "We need this money."
Áine Cain contributed reporting.
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