- LuLaRoe is facing another lawsuit claiming that it is a pyramid scheme.
- Two of the plaintiffs say the company incentivized recruitment and inventory purchases more than sales.
- They lost thousands of dollars and say they want to make sure other women don’t do the same.
Cheryl Hayton and Tiffany Scheffer were lucky.
Each is a former salesperson for LuLaRoe, a women’s clothing company that offers its merchandise through a network of sellers rather than brick-and-mortar stores or a website. While they say they left the company after losing thousands of dollars, others allegedly had it worse.
“People borrowed money from their families, they took out their 401k money, they took out credit cards, crazy stuff,” Hayton told Business Insider. “It’s hard to understand: Why would somebody spend $US10,000 to buy clothes that aren’t selling? Why would you do that?”
The reason, Hayton and Scheffer realised, had to do with a culture that allegedly sold women on the idea of financial independence and self-fulfillment, only to encourage them to take on debt and purchase more inventory when their clothes weren’t selling.
Now, Hayton and Scheffer are suing LuLaRoe in a class action lawsuit filed on Oct. 23, accusing the company of being a pyramid scheme where success came from recruiting new consultants to work beneath you. This created a chain of financial stress that could only be solved by finding more recruits, according to the lawsuit.
In a statement to Business Insider, LuLaRoe said the following:
“LuLaRoe has grown exponentially over the last four years. Our success has made us the target of orchestrated competitive attacks and predatory litigation. We take all litigation — regardless of its lack of merit — seriously. The allegations are baseless, factually inaccurate and misinformed. We will vigorously defend against them and are confident we will prevail.”
A part-time opportunity turned into a full-time job
Scheffer joined the company in April 2016 and recruited Hayton, her mother, shortly thereafter. Each had years of experience in sales (Hayton owned an event and balloon design business, while Scheffer worked in retail and customer service), and assumed their experience with LuLaRoe would be similar.
“I wasn’t trying to make thousands of millions of dollars by any stretch of the imagination,” Scheffer said. “I was just hoping to have a little extra shopping money to take my niece to the zoo and buy her balloons.”
“I was fairly newly retired, and thought this would be a great way to earn a little bit of money and still be able to spend time with my new grandchildren,” Hayton added.
But doubts began to form when what was advertised as part-time work became a full-time job. A typical day might begin at 9 a.m. and end at midnight, as they organised and photographed inventory, advertised their offerings through social media, fulfilled orders, and spent hours on foot looking for new customers.
“It even got to the point where they were saying, ‘Go to old-age homes and take advantage of seniors, because they’re willing to talk to anybody,'” Hayton alleged. “You are so desperate to make sales, literally, you are talking to everybody.”
While they stopped short of attempting to manipulate retirees, Hayton and Scheffer worked tirelessly, but the results didn’t match their efforts. This led to a period of reckoning for Scheffer, who struggled to accept the reality of her situation.
“I didn’t want to admit that I was failing at this,” she said, “and I was so convinced that it was my fault, that I wasn’t working hard enough, and so I eventually, finally woke up and realised I am working hard enough and they’re just not selling.”
They realised the money was in recruiting, not selling
After becoming familiar with the company’s incentive structure, they realised that the bonuses LuLaRoe offered were based entirely on the amount of inventory a consultant and her recruits purchased, rather than sales. The more inventory your recruits bought, the more money you received, and the less inventory you would have to buy yourself.
This is the basis of Hayton and Scheffer’s lawsuit, as they believe the company’s structure only benefitted those at the top of the “pyramid” who became wealthy as a result of the inventory purchases made by the recruits beneath them. That’s why, even when Hayton and Scheffer were struggling to sell the hundreds of items they’d already bought, they were encouraged to continue purchasing inventory.
“They were telling you, every time you sell your clothes, purchase more, purchase more,” Hayton said. “The more you buy the more you sell. The more you buy the more you sell. And that’s where a lot of women got in a lot of trouble.”
They hope other women don’t have the same experience
Hayton and Scheffer eventually tired of the company, and each resigned in June.
Both say they ultimately invested between $US10,000 and $US20,000, and neither came close to seeing a profit.
Despite their frustrations, Hayton and Scheffer insist the lawsuit isn’t about them. They believe they had it easier than many of the current and former consultants they have spoken with, and they want to make sure the company doesn’t continue to exploit women who have dreams of financial independence.
“We’re not doing it for ourselves, for our own benefit,” Scheffer said. “We’re doing it for all of the women who invested time and money and are struggling now because they were taken advantage of by the company and by those in charge, and who felt like failures because they weren’t succeeding. And they’re not failures. They worked really hard to try to make it work. But they were set up to fail from the very beginning.”