Two new class-action lawsuits against leggings retailer Lularoe say the company is running a pyramid scheme, convincing women to max out multiple credit cards, buy tens of thousands of dollars of merchandise, and even sell their breast milk to keep buying clothes the company knows they will never be able to sell.
One suit was filed Oct. 13, the other on Oct. 23, both in US District Court for the Central District of California.
The lawsuit filed Monday claims Lularoe’s main source of income is not sales to customers, but the thousands of purchases by their sellers to build their "inventory."
"Consultants are instructed to keep around $20,000 worth of inventory on hand, and are inundated with the phrase ‘buy more, sell more,’" the Oct. 23 lawsuit said. "These incentives mean new consultants are aggressively pressured to continue purchasing wholesale inventory even when the inventory they have is not selling, is unlikely to sell, or is piling up in their garage."
When the consultants did actually make money from sales, they were encouraged by those managing them — called their "upline" — to use that money to keep buying more Lularoe merchandise.
Lularoe also offered bonuses, like designer purses and free cruises, to consultants who bought the most inventory, no matter how much they actually sold to customers, the Oct. 23 lawsuit states.
"Consultants were told that they should have at least 10 items in every size in all styles. This was purportedly the ‘magic number’ of inventory," the lawsuit states.
The plaintiffs in each lawsuit describe a company that lures in women, especially mothers, with promises of being able to make money while staying home with their children. When their new "business" eventually fails, the plaintiffs claim the company then refuses to refund them for the thousands of dollars of merchandise they have been unable to unload.
The plaintiffs claim it is very hard for sellers to unload their inventory because the market of Lularoe sellers is so large and oversaturated.
"The vast majority of consultants sitting at the bottom of defendants’ pyramid were and remain destined for failure and unable to turn any profit," the lawsuit filed Oct. 23 states. "Some resulted in financial ruin due to the pressure to max out credit cards and to take loans to purchase inventory."
When some women expressed concern about the large amounts of money they needed to invest, the plaintiffs said they were encouraged to take out multiple lines of credit or loans. In one video obtained by blog MommyGyver, Lularoe "mentor" Kim Roylance even encouraged women to sell their breast milk.
When women try to get out of the business, the plaintiffs alleged in the lawsuit filed Oct. 13, they said they faced challenges.
Lularoe’s initial policy allowed its sellers to return merchandise for 90% of its value, not including shipping fees. However, in April 2017, a new policy said they would take back any unsold inventory from sellers who wished to get out, and would refund them 100%, plus shipping costs.
But in September they changed the policy back to only refund 90% — with no warning, according to the plaintiffs.
Other plaintiffs in the lawsuit filed Oct. 13 state that when they tried to send back their merchandise for that partial refund, they never got anything back at all.
They allege Lularoe decided the items they are returning are not-returnable, and since the people have quit the company, they are told they are not legally allowed to sell it anymore either.
One of the plaintiffs, Stella Lemberg, claims she was lured into buying more and more Lularoe with the promise she could get all her money back if it didn’t sell.
"On September 18, 2017, LuLaRoe e-mailed Ms. Lemberg and advised her that she would not be receiving a 100% refund, at best she would get 90%, and LuLaRoe would not pay for shipping," the lawsuit states. "In addition, LuLaRoe now would only accept returns of certain clothing, purchased at certain times, and from LuLaRoe in a certain manner."
When Lemberg tried to contact Lularoe to get the information she needed to return her items for a partial refund, she says she was left on hold for hours and ignored.
"Ms. Lemberg currently has approximately $20,000 worth of inventory, over 1,000 items of LuLaRoe clothing, in her possession, which have now been subject to LuLaRoe’s ‘policy change,’ depriving Ms. Lemberg of the ability to return any of her inventory and her right to a 100% refund for that inventory along with shipping costs," the lawsuit said.
Lularoe didn’t immediately return a request for comment on the lawsuits, but in a statement about the change in return policy, the company said the 100% refunds were temporary.
"We decided to end the [100% refund] when it became evident that a good number of retailers were abusing the program by returning product in extremely poor condition and providing inaccurate claims, as well as a retailers using it as temporary solution to struggles in their business," they said. "So our longstanding Returns on Cancellation of the Agreement policy, which we believe is generous, remains unchanged."
The lawsuits said many of the women were attracted to the opportunity to create their own business, and the fact that the company claims to pride itself on helping women succeed.
One former Lularoe seller who is not involved in either of the lawsuits, Jade GIll, told BuzzFeed News that her experience took a toll on her psyche, as her high hopes for making her own success were crushed.
"The Lularoe culture also caused me to have to go on anxiety and depression medication because it was constantly pounded into our heads: ‘If you can’t make this business work, it’s your fault. You’re not putting enough work into it,’" she said.