How we believe MLMs like LuLaRoe have been caught lying in their recruitment messaging

Business

Wonder why so many people continue to join MLMs, even after it’s widely known that most of them will lose money? We blame the lies that – we believe – the companies themselves tell.

It’s not been a good couple of years for the clothing MLM LuLaRoe. First they’re sued for $49 million by their supplier for unpaid bills, then they settled a lawsuit with Washington Attorney General Bob Ferguson claiming that LuLaRoe violated the Washington Antipyramid Promotional Scheme Act and the Consumer Protection Act. Under the terms of the resolution in February 2021, LuLaRoe was required to pay $4.75 million to the Attorney General’s Office. 

And finally, in 2021 the documentary LuLaRich which tells the story of the bizarre billion-dollar downfall of fashion company LuLaRoe was released on Amazon.

Surely all this drama and criticism must give the company pause for thought, right? And perhaps reconsider attempting to recruit more innocent women (and men) into their apparently flowed business model?

Actually, as we’ll discover in this article, it hasn’t. In fact, despite LuLaRoe admitting in their own documents that “…the median earnings were $0.00” they continue to attempt to recruit new people today.

‘Full-time money for part-time work’

But before we get to that, let’s wind back a bit and briefly examine LuLaRoe’s story. The company was founded in 2012 by DeAnne Brady and her husband Mark Stidham. Here’s how Wikipedia summarises the company’s history:

“LuLaRoe was incorporated on May 1, 2013. The company’s name was derived by combining the names of Brady’s first three granddaughters; Lucy, Lola, and Monroe.

“In 2014, LuLaRoe added skirts and dresses to its product line. In mid-2014, LuLaRoe introduced a line of leggings, which would go on to become LuLaRoe’s most prominent product. With 23 employees and 750 distributors, the company did $9.8 million in sales. 

“By July 2015, the firm had 2,000 distributors. In an August 2016 interview, LuLaRoe’s CEO Mark Stidham claimed that the firm was on track to exceed US$1 billion in sales, and that LuLaRoe had 26,000 distributors and was shipping approximately 350,000 units a day. By April 2017, LuLaRoe had more than 80,000 distributors.”

LuLaRoe’s original sales pitch, in the company’s heyday, was apparently this:

Yes, as you can see they were promising the prospect of a ‘full-time income for part-time work’ – a sales pitch that isn’t unusual in MLM-world. So how true is it?

If you’ve read any of our MLM articles, you’ll know you’re as likely to come across a real life unicorn as to find a way to earn full-time money for part-time work in an MLM. Or indeed ANY money. Because according to this research shared on the Federal Trade Commission (FTC) website, on average 99.6% of people who join an MLM will lose money once business expenses are taken into account.

This research is confirmed by our own investigations into companies like:

But how much responsibility do companies have for ensuring that an accurate message is conveyed to potential new recruits? Recruitment to an MLM usually happens in person – you’ll meet someone who’ll rave about how amazing their company is and encourage you to join their downline so they can make money from you (though of course they probably won’t frame it as such).

We know from numerous examples how often MLM reps lie about their business opportunity, and even how much they themselves earn.

We believe that MLM companies are fully aware of the lies that are being told. We’ve made the Direct Selling Association (DSA) aware and they appear to be happy for the deception to continue. Indeed, we believe that the model of MLMs – recruiting self-employed people to recruit and sell on their behalf – is a way of enabling the pretence to flourish, and ensure that MLMs’ often overpriced products make them a healthy income.

Do MLMs like LuLaRoe know that most people who join them lose money?

As a rule, we’ve noticed that MLM companies will do anything to try to hide the real earning (or loss) potential of their recruits. Sometimes they’re legally bound to produce income disclosure statements, however, and these always make grim reading. (See the links above for our investigations into MLMs’ income disclosures.)

They also reveal without a doubt that MLMs are aware of how money is dispersed within their company, and how only a tiny fraction of a percentage of all recruits, at the top of their inevitably pyramid-shaped earnings table, make anything like a reasonable income… or any money at all.

And of course they do. MLMs are often multi-million dollar businesses with accountants and finance professionals working for them. So they know exactly how many people are recruited, and how much those people sell – and buy. Because as we’ve discovered, the best customers for most MLMs appear to be the reps themselves, personally buying to either meet their active requirement, or buy a promotion or bonus for themselves or someone else.

That’s why so many MLM reps have entire spare rooms and garages full of unsold products. Products they are forced to sell at a loss when they leave.

“…the median earnings were $0.00.”

But recently we have seen cold, hard evidence of the apparent deception that MLM companies are happy to practice. Because, as part of their 2021 settlement with Washington State, LuLaRoe are required to produce annual income disclosure statements showing how much their Retailers have earned.

And LuLaRoe’s 2020 income disclosure statement makes typically depressing reading. You can read our full investigation into LuLaRoe’s income disclosure statement here, but in the context of this article, we want to highlight one line:

Yes, LuLaRoe admits that “In 2020, the average Leadership Compensation Earnings of all Retailers was $1,235.97 while the median earnings were $0.00.”

But surely LuLaRoe Retailers will make money on their actual retail sales right, even if they don’t earn off the leadership compensation plan? Well… not really. Here’s what the LuLaRoe income disclosure statement says about this:

“When only considering profits made through retail sales (not including any earnings through the Leadership Compensation Plan), the average gross profit of a Retailer in 2020 was $8,837.44 while the median gross profit was $1,438.66.”

So the median gross profit of all LuLaRoe retailers in 2020 was just $1,438.66, or $119.88 a month. Weekly that’s just $27.66. And that is before general business expenses, such as shipping, hangers, WiFi, stationery, packaging, marketing etc.

Just think how many hours the average LuLaRoe puts into their business… only to make $27.66 a week before expenses. Expenses that probably eclipse the meagre profit.

And LuLaRoe KNOW THIS. They produced this income disclosure statement (not voluntarily). They actually typed out the words “…the median earnings were $0.00.”

And yet… LuLaRoe continue to market their ‘money making’ opportunity

And yet they continue to recruit people, under the guise that they are joining a company that will ‘bless their lives’ and earn them an income:

To us this is cynically deceptive. LuLaRoe, the same people who typed out “…the median earnings were $0.00” are claiming that “You can earn in multiple ways” including “Leadership compensation plans”… the very plan that earns the average person zero according to their own income disclosure statement!

This is one of the many reasons why we despise the MLM (or social selling, network marketing, direct selling or any other label these companies use) model so much and campaign against it so passionately. We believe that MLMs are a scam perpetuated by the companies themselves and the tiny fraction of a percentage of reps at the top of them.

All the evidence we have seen shows that the companies and the top reps know that most recruits will earn nothing, and indeed will probably lose money once they factor in their business expenses. But the companies and top reps don’t care because THEY are making money. And that money, we believe comes from the loss of those very people they lie to in order to recruit.

What changes did LuLaRoe make to their 2021 income disclosure statement? We spot two small but telling omissions here.

The next time you see recruitment messages, ignore them!

So the next time you see recruitment messages like these, take them with a very large pinch of salt, and recognise that they could easily be knowing lies trying to recruit innocent people into what we believe are scams that will leave them far worse off than when they joined.

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LuLaRoe isn’t the only MLM company that we believe tells lies

Of course, LuLaRoe isn’t the only offender, we believe. You can watch our video here to see examples of some of the deception we’ve seen – and how companies appear to cover their tracks when exposed!

Here’s what Nu Skin say about their business opportunity:

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And here’s our investigation into their income disclosure statements, which shows that 84.58% of all their distributors failed to qualify for ANY commission in 2017. Yes, that means that almost 85% apparently earned nothing.

And here’s what Herbalife say about their business opportunity… handily omitting the fact that their own income disclosure statement shows that 89% of their UK reps received no payment at all from the company in 2017:

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We could go on… and on… and on with examples of the deception we’ve seen in the MLM industry. And not just in the companies themselves, you can read here why we believe the current Director General of the UK DSA tells lies and you can see here how we caught the USA DSA seemingly lying in an issue of the Direct Selling Journal.

In short, we believe the entire MLM industry is rotten. It’s built on lies, and a business model that only rewards the companies themselves and the tiny few reps who claw their way to the top of the pyramid-shaped earnings tables. And it is only able to exist because those reps and companies are happy to keep telling lies, in our opinion.

The day that they are stopped for good can’t come soon enough for us. And thanks to an ever-growing anti-MLM movement, that day is moving ever closer.

Read more about MLMs

Want to learn more about the MLM industry? You can read the experiences of some of the former MLM reps we have interviewed here:

We also recommend reading these articles:

Photo by Kalea Morgan