LuLaRoe hit with lawsuits seeking billions
The California clothing company that recently opened a distribution center in the Midlands is facing some pricey lawsuits.
LuLaRoe is being sued for at least $1 billion in damages for allegedly being a pyramid scheme, according to multiple reports.
This comes weeks after the West Coast retailer known for its leggings, skirts and other women’s clothing opened its new East Coast distribution hub in Blythewood.
The lawsuits, including a federal class-action suit filed Oct. 13, claim LuLaRoe recruited women to sell its goods from home and left thousands of them with unreturnable merchandise, according to The Associated Press.
The class-action lawsuit filed by four plaintiffs from across the U.S. says LuLaRoe company deceived them when it changed its buyback policy in September. The policy change lowered the promised refund from 100 percent to 90 percent of purchased inventory, with additional restrictions, according to businessinsider.
Another lawsuit, filed Oct. 23, alleges LuLaRoe encouraged women to take out loans, run up credit cards and even sell their breast milk, then left some in financial ruin with unsold goods, according to The Associated Press, adding as many as 80,000 people paid thousands up front for inventory.
“I was urged to stop paying my bills to invest in more inventory,” one seller told Quartz in August. “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.”
That lawsuit alleges Lularoe’s main source of income isn’t sales to customers, but the thousands of purchases by their sellers to build their “inventory.”
LuLaRoe calls the suits baseless and inaccurate.
There’s no word if it could impact the new distribution center in Blythewood. About 500 employees are on site now, officials said, with another shift of about 500 employees to be added in early 2018.
LuLaRoe sells its clothing through independent retailers, as opposed to in stores or a company website.
The company sells minimum levels of $5,000 in stock to about 80,000 independent retailers, mainly millennial women who then sell to their friends and acquaintances, building a customer base through social media and online parties, according to media reports.
The firm is known as a multi-level marketing company that encourages its consultants to build teams of recruits and share in their profits, the reports said.
CEO Mark Stidham – who joined the company after his wife, DeAnne, founded it – had harsh words for consultants who complained about the quality of their inventory and their inability to sell it, according to businessinsider. “No, you’re stale. Your customers are stale. Get out and find new customers. If you bring a new customer in, then your inventory isn’t stale. The problem is, you try to sell to the same group of people day after day after day.”
LuLaRoe’s footprint in the Midlands is based in the former Bose production plant, which stores 8 to 10 million garments at any given time. About 9,000 orders comprised of about 469,000 pieces of clothing are processed through the new center each day.
The company bought the 104-acre, 470,000 square-foot-facility on Interstate 77 for $16 million. The company is expected to invest $35 million and create at least 1,000 jobs during the next few years.
Most of the employees are recruited from temp agencies and are required to work for 90 days absence free before being brought on as full-time employees with benefits.
Staff writer Jeff Wilkinson contributed to this report.
The LuLaRoe origin story
Before forming her company LuLaRoe, DeAnne Stidham was a single mom who needed a way to earn a living while taking care of her seven children.
In the early 1990s, she met a pair of dress wholesalers and started selling end-of-season dresses to friends and family. By 2012, Stidham was designing her own maxi skirts. The designs took off, with sales fueled through her use of social media and parties at friends’ houses.
The business grew quickly, and she and her new husband, Mark Stidham, formed a company later that year that they named LuLaRoe after their three oldest grandchildren – Lucy, Lola and Monroe. The concept was not to sell directly to the public, but to “consultants” or “independent fashion retailers” who would use DeAnne’s social media and party techniques to sell the clothes themselves.
Jeff Wilkinson
This story was originally published October 29, 2017 at 11:11 PM with the headline "LuLaRoe hit with lawsuits seeking billions."