LuLaRoe accused of running a pyramid scheme

LuLaRoe, the popular retailer of leggings, tops and dresses, faces a class-action lawsuit in California accusing the company of running a pyramid scheme. LuLaRoe via Instagram

LuLaRoe, a popular retailer of leggings, dresses and tops, has amassed thousands of devotees in the five years since its inception. Now it is the subject of a class-action lawsuit accusing the company of being a pyramid scheme, according to Yahoo.

The company’s business model relies on independent retailers called “consultants” who sell LuLaRoe products to consumers through online “pop-ups” on sites like Facebook. Four named plaintiffs sued LuLaRoe on Oct. 13 alleging that the company baited consultants to sign up and buy inventory by promising them 100 percent refunds on any inventory they needed to return. In September, the company altered that policy, said Haeggquist & Eck, the law firm representing the consultants.

Yahoo reported that Haeggquist & Eck “seeks to represent a class of ‘thousands of consultants,’ yet undetermined, who demand to take LuLaRoe to trial on six counts of misconduct under California law — including unlawful, fraudulent, and unfair business practices, advertising, and breach of contract.”

The California-based retailer has roughly 80,000 consultants, each of whom must buy a minimum of $5,000 worth of inventory to begin working as a LuLaRoe independent seller.

An Aug. 6 article on the website Quartz said the retailer and similarly organized companies “flourish in suburban and rural America.”

It continued: “According to LuLaRoe’s retailer map, it only has 10 consultants in all of Manhattan, which has a population of 1.64 million. By comparison, Pueblo (Colorado) has the same amount for its population of 110,000, St. George (Utah) has 12 sellers to its 82,000 residents, and Idaho Falls (Idaho) and Casper (Wyoming) both have nine sellers servicing each’s 60,000 citizens.”

It’s not the company’s first run-in with lawsuits. In the past year, customers have alleged that the company’s signature leggings are faulty and that LuLaRoe’s sales app charges retailers “an erroneous tax,” Yahoo said. That’s not to mention 17 lawsuits against the company, an “F” rating from the Better Business Bureau and more than 300 complaints lodged with the Federal Trade Commission since May.

Last year, online fashion magazine Racked profiled the company’s boom, claiming that LuLaRoe, founded by a Mormon mother of seven, appeals to communities like those in Idaho and Utah because of its focus on modest clothing such as maxi skirts.