By Andre Jones
LulaRoe, a fast growing women’s clothing company and relatively new contender on the multi-level marketing (MLM) scene, joins the ranks of other MLM companies that have brought people to ruin.
Quartz.com gave details of a young lady whom they called “Sophie” (name changed at young lady’s request), who quit her Fort Worth, Texas job in June of 2016 to sell for LuLaRoe, a company that offers opportunities to American women to sell their items as “independent distributors.”
“I was urged to stop paying my bills to invest in more inventory. I was urged to get rid of television. I was urged to pawn my vehicle, “said Sophie. Sophie, just one of tens of thousands of suburban and rural women lured by the promise of substantial independent income, was convinced that she would be able to provide for her family and augment her life for an initial investment of $5,000.
Mesmerized by the lure of elaborate recruitment videos and high-pressure of self-empowerment sales pitches, potential salespeople of MLM’s like LuLaRoe don’t know until it’s too late that they stand very little chance of making more than lunch money, often plunging into debt and psychological crises instead. “I just had to get on anxiety meds over all of it because I’ve started having panic attacks,” she told Quartz.com’s Alden Wicker. According to a report on the business models of 350 MLMs, a whopping 99% of those who join MLM companies lose their money.
“The number of people who actually succeed at that is very small,” said Douglas M. Brooks, an attorney who represents pyramid scheme victims. “And some do—people will get up on stage and wave checks around, but they represent a fraction of 1%.” The business model of an MLM depends on creating a team of sellers under you so that you can make your money off of their commissions. While not necessarily illegal, the further down the recruitment ladder, the harder it will be for you to make money. “I’m trying to make it work the best I can without letting my family know I pretty much signed up for a pyramid scheme,” said Kayla, a Wisconsin LuLaRoe consultant in her twenties who asked that her surname be kept confidential.
The legal line between MLM and actual pyramid schemes can be blurry, but according to the Federal Trade Commission (FTC), “If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s probably not. It could be a pyramid scheme. Pyramid schemes are illegal.”
“LuLaRoe’s success is based on [retailers] selling the comfortable and stylish clothing to consumers, not ordering more inventory,” said a LuLaRoe spokesperson. “Retail is not for everyone.”