By Calley Hair The Columbian, Vancouver, Wash.
WWR Article Summary (tl;dr) LuLaRoe is facing a $1 billion lawsuit from vendors who are calling the brand a pyramid scheme.
The Columbian, Vancouver, Wash.
Consignment stores traditionally sell gently used items. But on a recent afternoon at Spanky's Legendary Consignment on Southeast Mill Plain Boulevard, the racks were flush with brand-new clothes: 24 pairs of one-size-fits-all leggings, 35 dresses, a handful of skirts on the clearance rack.
These days it's not an unusual sight, said Spanky's owner, Rachel Phillips. Never-worn pieces from LuLaRoe, a multilevel marketing company that sells soft, comfortable clothing designed to fit all body types, are being consigned to the store in huge batches.
Cut from stretchy material, the garment brand is known for its geometric and floral-patterned leggings, printed T-shirts and modestly cut dresses.
"There's a lot of local vendors, mostly women, who have gotten into the business of sending LuLaRoe," Phillips said. "It hasn't turned out the way they thought it would."
In the last year or so, she said, Spanky's has seen an uptick in the volume of never-worn LuLaRoe clothing from local retailers who invested in the company's products, but had trouble selling their merchandise.
"They come to us because they need a way out and they need to get rid of their inventory and recoup some of the money they've invested," Phillips said. "It's a win-win for us, because there is demand for the LuLaRoe products. And we're able to provide brand new clothing for the customer, and also help the consignor."
The Vancouver market is a tiny slice of LuLaRoe's full reach. At its peak, Bloomberg reported in April, the clothing company had an estimated 150,000 retailers across 50 states.
But it's representative of a pattern playing out all over the country, with vendors -- mostly women and stay-at-home moms -- scrambling to recoup their losses after buying in to the company's stated goal of helping them make money from home, only to find the market oversaturated.
How it works LuLaRoe is a multilevel marketing company that works by selling its clothing line through independent consultants.
Those consultants start by buying in, usually a few thousand dollars worth of product, then operate as an autonomous business, managing their sales and inventory. It's a format often employed by health supplement companies such as Herbalife or LifeVantage. Popular cosmetic companies Avon and Mary Kay use the model.
As LuLaRoe vendors sell more clothing and recruit other potential vendors to join, they're able to advance up the company ladder and eventually make a cut of sales from the consultants they've recruited.
It's pitched as a way to make money from home while working a flexible schedule. The company's website reinforces this mission: "LuLaRoe is a community of social selling entrepreneurs, offering individuals the opportunity to achieve their dreams by connecting people to product," the website states. "LuLaRoe was created to help others succeed, and provide an opportunity to have the freedom and flexibility that comes from building your own business at your own pace. This creates the time to spend with your family."
What it's like That flexibility is what attracted former local retailer Julie Beckwith.
"I had been a stay-at-home mom since my oldest son was born," said Beckwith, now a mother of four. "I really liked the idea. They really sold this idea that you could work part-time hours but make full-time money, and still have time to do everything you need to do as a stay-at-home mom."
Beckwith was also drawn to the body-positive side of the brand, she said.
"I'm a curvy gal, and it's kind of hard to find clothes for plus-size bodies that designers make the same as smaller clothes," Beckwith said. "They were these amazing, soft, comfy leggings -- that fit!"
That was in October 2015. Beckwith did some research and found stories of women making thousands of dollars selling leggings. She decided she wanted in.
"At that time, the buy-in to become a consultant was over $6,000. My mom gave me a loan. She believed in me."
In her first year, business was booming, Beckwith said. She sold around $70,000 worth of inventory in 2016, with events booked every weekend and sales over Facebook. The hours exceeded part time -- she estimates she was putting in around 50 or 60 hours a week -- but they were flexible, with the majority of her work taking place over the weekend or while her kids were sleeping.
She recruited more vendors. At the time, she said, it was an easy sell.
"They kind of found me, actually. At that point, the company was so appealing to people and so many people knew about it, I just talked about my experience and how much I loved it. And how much cash I was bringing in," Beckwith said. "I quickly built a team and I ranked up to the 'trainer' level."
Around the holidays, things started to sour. The company had started to receive some bad press regarding faulty products -- "leggings would show up in our boxes and they would be wet. Or people would put on their leggings and go through a hole," Beckwith said -- and vendors waiting months to receive refunds.
The culture had started to shift, too, away from the supportive sisterhood vibe that had attracted her in the first place. Beckwith recalled one conversation with a fellow retailer, who was told by her higher-ups that she should put her kids in day care and devote more time to selling.
"That was the beginning of the end for me," Beckwith said. She placed her last order in February 2017 and was able to sell all of her merchandise.
"Unlike some people at this point -- at the point that I got out, there was still enough interest in the clothing that I was able to sell everything off," Beckwith said.
She sat down and did the math. She had sold $70,000, and half of that went to buying wholesale merchandise. Of the remaining $35,000, a cut went to her higher-ups. Still more went to taxes, transportation, supplies and other expenses of running a business.
When all was said and done? "I made about $1,200," Beckwith said.
She now works part time at a Vancouver day care center.
Asked if she'd do it again, her answer was immediate. No. Definitely not. But there were some upsides.
"I think it taught me a lot about myself, and taught me some good lessons in how to run a business," Beckwith said.
Stretched thin An emailed request for comment from LuLaRoe's corporate media team was not returned to The Columbian by this article's deadline. The "press" and "contact" pages on the company's website were broken links.
LuLaRoe is facing a $1 billion lawsuit from vendors who are calling the brand a pyramid scheme. Filed last October, the suit alleges that the Corona, Calif.-based company pressured its vendors to rack up credit card debt, and focused more on getting its retailers to buy in than on actually selling clothing to be worn by customers.
According to suit documents, retailers "were inundated with the slogan 'buy more sell more' and were told they would recoup their investments through retail sales and recruitment."
From a market standpoint, the plentiful supply of garments is driving the prices down, and retailers are competing intensely with one another to sell.
Those who can't sell sometimes turn to consignment stores like Spanky's to unload their remaining inventory, trying to avoid taking a total loss. Phillips said the practice has become fairly commonplace with local vendors in just the last year.
"It's kind of sad, some of the stories we've heard. People have put thousands of dollars into purchasing product and they're not able to sell it," Phillips said.