A popular direct clothing sales company is the focus of not one, but two, class-action lawsuits accusing it of being a pyramid scheme.
LuLaRoe, known for its line of leggings and other knit clothing, is being sued, saying that independent retailers had to take out loans and max out credit cards to remain viable in the company’s “buy more, sell more” business plan, The Riverside Press-Enterprise reported.
But the company fired back, saying that the lawsuits are “factually inaccurate and misinformed,” The Associated Press reported.
One suit, filed on Oct. 23, claims that LuLaRoe is violating federal racketeering law, CBS News reported.
Direct buyers, or consultants, purchase leggings, skirts, shirts and kimonos directly from LuLaRoe then sell them to their friends and family members. The consultants are in charge of inventory and marketing.
It costs consultants between $5,000 and $9,000 to start their association with LuLaRoe. They were promised bonuses for bringing in new consultants and how many items those new sellers would purchase, The Press-Enterprise reported.
The lawsuits claim that the market for the leggings was over-saturated with consultants.
There are more than 80,000 people signed up as sellers for the company, The AP reported.
And those who wanted to get out of the financial burden of running their own home-based business claim they had a difficult time recouping the money they invested.
LuLaRoe recently changed the rules when it came to returning inventory and getting out of the leggings game.
At one point the company offered a 100% return policy and free return shipping for consultants, used as a recruiting tool, claiming that joining the LuLaRoe company was a “no-risk sales approach,” but it was recently changed to up to 90% and no free shipping of the thousands of dollars worth of clothing inventory, The Press-Enterprise reported.
The company said the changes were necessitated due to the fact that some consultants were returning items in poor condition with inaccurate claims. It also said that the 100% return was temporary to offer those who were getting out of selling the clothing to return it instead of selling it for less than the retail price, undercutting other consultants.
Some sellers, however, said that they attempted to send back their unsold stock, but have not been supplied their return authorization number or shipping labels needed to conduct the return, so they’re stuck with items that can not be returned and won’t sell, The Press-Enterprise reported.
The company had other struggles this year despite the $2 billion in sales. Earlier, consumers complained about the quality of the product when the leggings would develop holes after wearing for a short time. Customers also complained that the sizing was not consistent between styles, saying that a 2XL in one style was a medium in another.