In 2016, the US Census Bureau stated the median rural household income is 4% lower than it is for urban families, and income inequality is also higher. The US government tried to help people understand the risks before joining these kinds of companies, but MLMs had their way. In 2012, federal legislation passed requiring all franchise companies to provide a disclosure document with information on weighing the benefits and risks of signing up. However, MLMs poured money into lobbying and flooded the FTC with more than 17,000 comments from consultants saying the disclosure would be a burden, and asked to be excluded. The FTC complied, and now MLMs aren’t required to disclose information on risks to interested consultants.
As a result, many women sign up unaware of just how hard the system makes it to earn a living selling for a MLM. “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,” says Kayla, a consultant in her twenties who lives in rural Wisconsin.
Quartz agreed to Kayla’s request not to use her last name to protect her anonymity, and gave pseudonyms to others. Several of LuLaRoe’s sellers declined to go on the record with Quartz using their full names, citing concerns about possible reprisals from the company due to a non-disparagement clause in their contracts, and concerns about being harassed by other sellers. This fear only perpetuates the cycle as it pulls more women into its spiral.
Ask any woman living in the suburbs of America’s Bible Belt, and chances are she will be able to tell you all about LuLaRoe.
Founded in 2012 by a Mormon mother, Deanne Stidham, LuLaRoe is named after her three grandchildren, Lucy, Lola, and Munroe. As the company lore goes, she designed clothing for her daughter and had so much success selling copies to the parents of her daughter’s friends that she hired consultants to sell for her. In just four years, her company’s range of leggings, dresses, shirts, and other wares generated $1 billion in sales, making it one of the largest MLMs in the US; between October 2016 and June 2017, it claims it sold nearly 40 million pairs of leggings. Mary Kay, one of the oldest and most successful MLMs, had $4 billion in sales in 2015.
During the Mary Kay heyday in post-war America, consultants would invite their friends to in-home parties (think Tupperware) or go door-knocking to sell their products in their neighborhood (think Girl Scouts). However, in the digital age, the game has changed. Consultants who had previously run out of doors to knock on or neighbors to invite over had to put their goods in a car and drive to the next town for fresh clientele. Now they just form a group on Facebook, fire up a Live video stream, and sell to eager customers across the country, like their own miniature Home Shopping Network.
Using this model, LuLaRoe sellers busted out of the traditional confines of heritage, Avon-style MLMs. One of the reasons Avon had so much success in the 1960s was that it was the easiest way for suburban Americans who were an hour away from the closest department store to sample and buy makeup. Convenience won out. Now Facebook can provide their contemporaries with that same easy purchase availability from the comfort of their couches.
Sarah Stern, a stay-at-home mom in southern Florida, signed up with LuLaRoe in March 2016 after receiving a glowing review from a friend. “She told me that they have a cult following, the clothes sell themselves, and it’s under 10,000 people now, so you want to get in while it’s on the ground floor,” she says. Stern joined her friend’s LuLaRoe Facebook page and saw women fighting in the comments to buy beautiful leggings and dresses. She showed her husband, a VP of sales for a consumer-products company, the profit margins, and he told her to go for it.
“I did pretty well for myself,” says Stern, who split sales with her business partner. The work was part-time, and she pulled in anywhere from $5,000 to $10,000 a month in revenue. Every month, the head of her consultant group would post a leaderboard for the top inventory buyers and sellers, some of whom were bringing in up to $60,000 a month. Stern noticed that the amount of inventory bought correlated with higher income, so after attending one of LuLaRoe’s touring conferences, she was inspired to bulk up her inventory. She and her business partner went on a buying spree, posting pictures of all the unopened boxes on her Facebook page, which began to swell with excited customers.
Shortly after, Stern began to pull in anywhere from $18,000 to $24,000 a month in sales. She was working 80-hour weeks with seven women selling underneath her. “The moment I woke up, I was taking pictures and answering questions,” she says. “My husband had to do the food shopping. My daughter has dance one day a week. While she was dancing, all the other moms would talk, but my face was always in my phone. I was uploading albums, or I was part of a multi-consultant sale.”
Stern jumped in during the heyday phase of a MLM when the people at the top grew rich, and quick. By the start of 2017, nine months after Stern joined, LuLaRoe was pushing 80,000 independent retailers. According to interviews with several consultants, this is also the time when sales suddenly became tougher: The hundreds of thousands of ravenous customers who once clamored to buy leggings from 10,000 consultants flipped in less than a year to eight times that amount selling to just a fraction of the clients. The scales began to tip.
According to internal consultant calls, LuLaRoe is still onboarding more than 150 retailers a day. (LuLaRoe declined to confirm how many people are joining daily.) In this spandex rush, so many women were signing up to sell LuLaRoe that the onboarding queue stretched for weeks. Former customers were often convinced to become sellers so they could get their own wares wholesale, plus hopefully make some profit on the side. “Every time I got a really good customer, they would sign up under someone else,” Sophie says.
“As of the end of first quarter 2017, approximately 90% of all retailers who started an independent fashion retailer business since the time LuLaRoe was founded still maintain their businesses today,” says a LuLaRoe spokesperson. “We are very proud of this figure.” In part due to this high retention rate, the market is becoming saturated, both online and off. Multiple retailers now often live within a few blocks of each other—and how many pairs of leggings does one neighbor really need? “They’ve flooded the market with so many consultants, nobody is making money, and everyone is so stressed out,” Sophie says. “Now it’s like, ‘Oh, there’s another consultant down the street.’”
“One of the unique facets of this business is that the victims are also perpetrators,” Brooks says, speaking generally of MLMs. “You’re trained to recruit your friends and family and neighbors.” He points out that when you onboard someone underneath you, especially if they live in your town or are in your friendship group, you are essentially creating a competitor. It’s as if you open a Subway sandwich shop and then encourage your neighbor to open a Subway right next door—and everyone is already sick of sandwiches.
Selling the dream
LuLaRoe’s messaging is filled with positive language: “I believe in you” is the company’s unofficial tag line, and body-positive imagery floods its website to showcase its large selection of flattering plus-size outfits. “It’s hard to find plus-size clothing that actually looks good—that makes you feel like you look good,” Sophie says. “That’s why there’s such a customer base for LuLaRoe.”
There’s another positive that consultants always emphasize: friendship. MLMs often provide a sense of belonging for their consultants; a crucial lifeline for moms sitting at home with only the kids to talk to. “I had come out of a rough situation, a custody battle,” Sophie says. “I was lost. I had no friends, I had no social life. And then instantly I had this giant family of women who I didn’t even know. ‘We love you. What do you need? Let me help you. You’re having trouble with sales? Let me share my customers with you. You can’t make an order this month? Let’s trade shirts so we have new inventory.’ It was a true, true sisterhood.”
LuLaRoe gives these women a way to have it all: a career, new friends, body confidence, extra money, all with enough time left over to be an excellent mother and wife. “Want to earn full-time income for part-time work? Ask me how!” reads a sign that was sent out to new consultants last year. Stidham often promotes the idea of her company being a perfect part-time job for mothers by talking about being a single mother of seven hustling out of her home—even though she was already remarried and her kids grown before LuLaRoe was founded.
Ashley (name changed), a mom and wife who lives in the suburbs of Indianapolis, signed up to sell LuLaRoe in August 2016 after her husband lost his job and was only able to make half his salary at the next one he found. “Simply put, I signed up to make money,” she says. Ashley opened three credit cards to cover the initial set-up cost and generated $3,500 a month in revenue for the first two months. But on the advice of other retailers, she plowed it all back into buying more inventory instead of keeping any of it for herself, her family, or their mounting bills. “Often increased inventory can assist in increasing retail sales to consumers,” says Justin Lyon, LuLaRoe’s chief marketing officer.
“There was a point in time where I had $8,000 worth of inventory sitting in my home while I was running up to food banks to feed my family.” Sales started to decline in the third month. Her consultant group told her it was because she didn’t have enough inventory, so Ashley followed their advice and bought even more. As sales continued to decline, she used her income-tax rebate to buy more, but it didn’t keep her sales from bottoming out at $500 a month. “There was a point in time where I had $8,000 worth of inventory sitting in my home while I was running up to food banks to feed my family,” she says. “I really feel like I failed my family.”
“Retailers should absolutely never put their personal financial situation at unreasonable risk to establish or operate their retailer business. Period,” Lyon says. “If any retailer is encouraged to do that, we do not support it.”
Regardless of LuLaRoe’s official policy, the selling community is rife with consultants strong-arming risky decisions with smiling faces. Emails outlining new policies are sent out to independent retailers directly, who then discuss the company’s communications between themselves. Directives for how to interpret rules are often filtered through Facebook groups by team leaders eager for bonus checks, leaving the door to miscommunication—and manipulation—wide open.
“These girls would listen to [their] leader as the Bible,” Stern says.
Kayla lives in a small town in Wisconsin. She’s single, 27, childless, and in grad school. In late 2015 she was working as an administrative assistant at an office earning $32,000 a year when a sorority sister from college invited her to a LuLaRoe in-home party. She was initially resistant to the very idea of leggings as pants, but she walked away with several dresses for $65 each. “I realized if they’re making the money that they say they’re making all over their Facebook pages and how it’s life changing, why can’t it change my life?” she says.
“I realized if they’re making the money that they say they’re making all over their Facebook pages and how it’s life changing, why can’t it change my life?” Kayla assumed she could just buy a couple of hundred dollars’ worth of leggings to get started, but she found out that she was required to buy a startup inventory package, which costs between $4,900 and $6,000. “Initial inventory packages are designed to provide sufficient inventory to help retailers succeed,” says a LuLaRoe spokesperson. “If a retailer can’t afford it, a retailer should not buy it.”
At this point, even if she had quit the next day without selling a thing, LuLaRoe would have made its profit. Kayla acquiesced on Jan. 1st, 2016—and was then immediately encouraged by her upline to buy an additional $1,000 in Valentine’s Day-themed clothing. (Brooks says this tactic is called “channel stuffing” or “inventory loading.”)
She was told by one of the consultants in her Facebook group to take out a low-interest credit card to pay for the initial buy, and that she would pay it back within eight weeks at the most. If a consultant’s credit isn’t good enough for a card, some communities of sellers encourage would-be consultants to raise money; there are currently over 400 GoFundMe campaigns to start a LuLaRoe business.
How long would it take a seller to earn back their initial $5,000? Let’s say she sells 30 leggings in an online party. They cost $10.50 each wholesale, and the manufacturer’s advertised price is $25, so she would make a $435 profit. After that, consultants often tell other sellers to replace their inventory and build up more in order to be successful. “The question of inventory levels is determined by each retailer in the conduct of the retailer’s own independent business,” says a LuLaRoe spokesperson. “If the retailer believes greater inventory would help, they are encouraged to order.”
More on next page…