Is LuLaRoe Going Out of Business? Is It a Scam?
Back in the fall of 2017, my feeds were filled with a whole lot of #LuLaHate as consultants found out the hard way that LuLaRoe's 100% refund on unsold inventory for sellers deciding to close up their digital shops was no more.
Looking more deeply into the drama, I found that many consultants called it quits as a result of this policy change. Since then, the company has also faced legal troubles with their primary distributor (link at the bottom of this article). While these things don't necessarily indicate a failing business, many see them as signs that the brand may be on its way out.
The reality of direct sales is that a lot of people dive in, a lot of people jump back out, and then, inevitably, more people dive in after them. That's good news for LuLaRoe since they make thousands upon thousands off of each new consultant's initial startup whether or not that consultant decides to stick around. Still, there are plenty of other factors that don't necessarily bode well for the company's future. Each of the statements listed below will be explored in more detail in the following sections.
10 Reasons Why LuLaRoe May Be Failing
- Their customers aren't satisfied.
- Consultants feel cheated by the new return policy.
- Consultants don't get to pick their merchandise.
- Their founders are not transparent.
- Their clothing is overpriced and low-quality.
- Their style is outdated.
- Their business model isn't sustainable.
- They rely on consultants—not customers—for income.
- The market is oversaturated.
- Consultants are punished for marketing their products.
1. Their Customers Aren't Satisfied
To clarify, the company's customers are their direct sales consultants—those who purchase inventory for resale—not the actual end-customers making individual clothing purchases. With a model that relies heavily on social media, news of dissatisfaction is spreading like wildfire across the very places that consultants are encouraged to sell their LuLaRoe inventory.
Never forget that in the end, consultants are LuLaRoe's customers. Unhappy consultants = unhappy customers = fewer new buy-ins = less money for LuLaRoe. So, maybe the company is still somehow staying afloat, but if they don't shake up their business model and redeem themselves among their base, they may be well on their way out.
2. Consultants Feel Cheated by the New Return Policy
Lots of direct-sales consultants get peeved with their company's policies, right? Very true, but many of them don't have the amount of money invested that LuLaRoe requires their consultants to spend up-front. LuLaRoe consultants must invest into product lines whose success depends largely on fashion trends and supply and demand. Many customers will pay big bucks for a unicorn pattern but wouldn't even pay an Old Navy end-of-season-clearance price for most of LuLaRoe's other patterns and styles.
Now, back to that return policy. As LuLaRoe states, they didn't get rid of their 100% refund return policy; they just went back to the old policy of a 90% refund. Of course, to even receive the 90% refund, consultant-returned merch has to pass some pretty strict standards to be considered resealable. Those standards include but are not limited to merchandise that was purchased by the consultant within the past year with tags still attached in packaging that hasn't been damaged.
Why is this a problem? Most consultants immediately unstuff their big ol' boxes of brightly patterned leggings, perfect-T's, and various feminine-monikered tops, skirts, dresses, and cardigans to display at shows and on their social media. That's how consultants make sales. This return policy leaves a lot of consultants scrambling to sell their products before closing up shop as they face a pretty sizable loss by choosing to return unsold merchandise to headquarters. Yet, the reason a lot of those products haven't sold in the first place is that they're butt-ugly or no longer in style.
If I start a business with LuLaRoe, I lose control of my ability to make wise fiscal choices right from the start because consultants don't even get to pick their sizes with their first order.
3. Consultants Don't Get to Pick Their Merchandise
And here is the fatal flaw in the LuLaRoe business model—the supposed business owner (the consultant) does not get to pick which specific products they purchase for resale. Yet, they must carry inventory.
This doesn't make a lot of sense from an investment perspective. If I decide to start a little boutique selling, say, all handmade items from Etsy Wholesale (no, I've never daydreamed about this—not once), I get to decide how much of each product I will purchase, what colors they'll come in, and what sizes I want to carry. I can see what sells then adjust my future purchases accordingly. Sure, I probably won't be able to return unsold items to the wholesaler, but that's a risk I'll have to keep in mind when choosing said colors, sizes, and amounts.
If I start a business with LuLaRoe, however, I lose control of my ability to make wise fiscal choices right from the start because consultants don't even get to pick their sizes with their first order. Seriously! You get to pick a starter kit, and pre-selected products are shipped to you in varying sizes, styles, and colors. It's then your responsibility to earn a profit from those products without taking into account any variables like who your personal target market is, what markets are available in your area, and what styles appeal to those markets—all for a fantastically frightening startup cost of around $5,000 (at least).
Here's a quick reminder of what a $5,000 investment can buy you besides a boatload of ugly, overpriced clothing:
- A semester of college
- $5,500 in a few years via investment in a mutual fund
- Raw land
- A used car
- A downpayment on a brand new car
- Your property taxes for the next two years
- The startup costs of a business that relies on your talents and interests (like photography or interior design)
- Wholesale inventory that you have carefully curated after studying your market
4. Their Founders Are Not Transparent
In late 2018, one of LuLaRoe's founders, DeAnne Stidham, went live on Instagram. When consultants resorted to asking her when (or if) they'd receive refunds for merchandise and attempted to address other business concerns, Stidham's response was to name-call and block her "haters."
5. Their Clothing Is Overpriced and Low-Quality
Most direct-sales products seem overpriced compared to regular retail brands. I know this, but I also like the idea of supporting someone selling locally. However, LuLa's stuff just seems crazy expensive for what you're actually getting.
For instance, taking a look at my local LuLaRoe group, I could nab a very thin, brightly patterned, open-front cardigan for $55 plus shipping. For $75 and free 2-day shipping, I can get a soft, cotton-knit, open-front cardigan from Everlane in a pretty neutral gray and see the factory it's being produced in.
Looking out for a pair of patterned leggings akin to LuLa but without the inflated price? Nowadays, you can find that for less than half the price of the direct sales company's offering with easy returns via Amazon.
The boldness that was once right on-trend isn't quite so popular these days, yet LuLaRoe continues to send consultants styles that are difficult to market.
6. Their Style Is Outdated
When LuLaRoe first popped up, everyone (including me) freaked out that you could get leggings thick enough to avoid any wardrobe malfunctions. While the patterns seemed cool at first, clothing trends quickly moved on to more neutral and minimalistic styles. Unfortunately, LuLaRoe consultants are usually sent only a handful of solid-colored pieces among the piles of zigzags, polka dots, and poorly-placed patterns that create the illusion of period stains (seriously, just Google "Lula Bloopers").
The boldness that was once right on-trend isn't quite so popular these days, yet LuLaRoe continues to send consultants styles that are difficult to market. Look, I'm not saying that there aren't a lot of cute styles to be found with LuLaRoe—there are. But for the consultant, it can be difficult to create real-world outfits out of a single batch of product. In a home-based business, time really is money, and the more time you spend trying to sell a product, the less money you're really making.
7. Their Business Model Isn't Sustainable
Why do people purchase LuLaRoe? Is it for the quality? Maybe. Or maybe it's for the perceived quality (the garments are now manufactured the same way every other pair of leggings or tunic top is manufactured—usually overseas). Is it for the price? No. The prices are high. Okay then, is it for the styles? Also maybe. But most major retailers are now offering similar styles at cheaper prices.
From what I can see, people buy LuLaRoe because of FOMO (fear of missing out). The whole "we only produce this many pieces of this pattern" thing creates a lot of urgency in consumers. OMG, what if I never get to see that splashy poppy print on my legs if I don't buy this pair of $25 leggings plus $8 in shipping right this very minute?
FOMO is not sustainable when it comes to retail. Fight me on it if you want, but I'll just give you two words: Beanie. Babies. Just like my parents and I began to realize that Beanie Babies were glorified crane-machine prizes, consumers will eventually realize that LuLaRoe clothing snags, tears, and pills just like any of the lesser-priced items in their closets. After a while—I'm making an educated guess here—many will stop being repeat LuLa customers.
8. They Rely on Consultants—Not Customers—for Income
So where are all of LuLaRoe's customers? They're the consultants themselves since LuLaRoe doesn't get paid for the sales that consultants make. If my sister-in-law, my mom, and I each decide to start our own LuLaRoe business, that's at least $15,000 for the company.
Let's say I go crazy and decide I'm going to buy a bunch of inventory because I just know that the more I have, the more I can move, and the more I move, the more I'll make, so I take out a loan and invest another $3,500 in inventory. That's $18,500 dollars for LuLaRoe! Let's say that my mom, my sister-in-law, and I all bomb out and we sell nothing. That is still almost $20,000 for LuLaRoe.
9. The Market Is Oversaturated
Everyone else and their mother (and their sister-in-law) is selling LuLaRoe. And all of those consultants equate to thousands of additional dollars in LuLaRoe's pockets. The company's once white-hot image of cute, rare clothes no longer holds up to scrutiny. All I have to do is search LuLaRoe on Facebook, and I can find a dozen consultants in a 50-mile radius, giving me the ability to hunt down the exact patterns, styles, and sizes I want—just like I can do when I shop on H&M.com. LuLaRoe's once-genius business model of supply-and-demand has backfired on consultants and bored the rest of us.
10. Consultants Are Punished for Marketing Their Products
So, let's say we want to return some inventory because 70% of it didn't sell and we need to get out from under the debt. Well, guess what? We're now at LuLaRoe's mercy as to whether the packages that were opened are considered "damaged" because we opened them to market our product. Essentially, LuLaRoe punishes business owners for doing exactly what a business owner should do—market their products. That's not a business model; that's a scam.
Vice Presents: Leaving LuLaRoe
Is LuLaRoe a Multi-Level Marketing Scam?
Have you ever sold LuLaRoe? If, not, are you thinking about it? Do you love it? Do you hate it? I want to know! Do you think the business is a pyramid scheme or multi-level marketing scam? Do you have thoughts about the legal trouble they've gotten in? Comment below and feel free to use a fake name to remain anonymous. I want to hear from you!
Hey former or current LuLaRoe consultants! Tell us—did you make your investment back?
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Questions & Answers
I shamefully have spent over 10 grand over the years on LuLaRoe. Almost cost me my marriage. Now I sit here with all this stuff. I would love to know how in the world you can sell unsold LuLaRoe inventory?
You can try to consign it - I see quite a bit of it on ThredUp and Swap. Unfortunately, I don't think you'll make your investment back but you can at least try to recover some of it as you move forward and away from LuLaRoe.Helpful 53
Is Lularoe being sued?
Yes, as of December 2018, LuLaRoe and it's owners, Mark and DeAnne Stidham are being sued by their main supplier, Providence Industries. Providence Industries claims that they have reason to believe that the Stidham's are not only unwilling, but unable to pay their debts, while the Stidham's retort that the lawsuit is nothing more than an attempt to make LuLaRoe look bad.
For now, the outcome of the lawsuit is unresolved.Helpful 19
© 2017 Kierstin Gunsberg