LuLaRoe founder calls pyramid scheme accusation an "uneducated o - WNEM TV 5

LuLaRoe founder calls pyramid scheme accusation an "uneducated opinion"

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Source: CBS Source: CBS

The co-founders of popular clothing retailer LuLaRoe are speaking out about recent allegations against the company.

LuLaRoe, which has thousands of independent sellers nationwide, has been hit with several complaints about quality and refund policies.

A recent, $1 billion lawsuit alleges it is a pyramid scheme.

The company's co-founders, Mark and DeAnne Stidham are now responding to the accusations.

“We have a multi-billion-dollar business, it was not built by tricking people into giving us their money,” Mark Stidham said.

The Stidhams tell their story as one of a successful family-run business built on hard work and creativity.

“We have a clothing line that people love. They love its comfort. They love its versatility. They love the fashion,” Mark Stidham said.

The clothing line began with DeAnne Stidham's handmade creations and grew to become a business they say has had over $2 billion in sales so far this year. It’s made possible through a network of some 80,000 independent sellers or "consultants" who sell online or through home parties, much as Stidham herself first did.

“I often say LuLaRoe works for you, you don't work for LuLaRoe. That means that you get to decide on your time and you get to decide what works best for you,” DeAnne Stidham said.

Online, some consultants say they've made good money.

“You get the product, you put it before people and you sell it, and you have money and that's the simplicity of this business and that's as easy as it can be,” DeAnne Stidham said.

LuLaRoe's approach?  It’s what's called multilevel marketing.

Retailers buy in with a minimum purchase - in LuLaRoe's case about $5,000 - then sell to customers at a markup. They also can make money by recruiting other sellers to join their team and make bonuses off those retailers' sales.

The company points to success stories like Consultant Misty Elsasser in California.

Elsasser started three years ago, when there were just 700 sellers nationwide, and now has more than 11,000 members in her Facebook group.

"I love LuLaRoe, I wear it every single day,” Elsasser said.

She said her profits are upwards of $3,000 a month.

“For me, I really focus on what's important for our family and for my business,” Elsasser said, noting she pays her mortgage with the income.

It all sounded good to Chicago-area stay-at-home mom Susan Konczal.

“'It's very minimal part-time work for full-time income. You'd have lots of time and extra money to do whatever you want with your family,”” Konczal said a recruiter told her.

So Konczal said she invested around $11,000 - but despite working more than full-time hours, said she couldn't make it work - and now is still over $4,000 in debt.

“I feel…I feel like I failed my family. I put my family into debt to do something that ended up not being what they preach,” Konczal said.

She's not the only one.

A recently-filed lawsuit seeking a billion dollars claims "tens of thousands of other consultants never even made a profit" because LuLaRoe, they allege, is a "pyramid scheme” that “only profited a few and only made payments to consultants based on how much product those consultants and their recruits purchased on a regular basis."

“What that is an uneducated opinion,” Stidham said. “They haven't looked at who we are because we sell product through to a consumer, and it's a highly desirable product. That is not a pyramid scheme.”

The co-founders did admit that while more than half of LuLaRoe's sellers - some 40,000 - make a thousand dollars or more per month - a small group at the top pulls in $500,000 or more per year in bonuses, made off the sellers below them.

“For the vast majority of people that get into a company like this, they're going to be lucky if they break even,” said Douglas Brooks, an attorney who sued other multilevel marketing companies.

Meanwhile, the Stidham’s have a different belief.

“I will tell you that we have been incredibly disruptive in the marketplace. And I don't think those are all entirely organic complaints,” Mark Stidham said.

Stidham won't say precisely who he thinks is trying to generate complaints against the company but does say he believes other companies are targeting LuLaRoe's retailers to try to copy the company's success.

Meanwhile one marketing expert said he doesn't think it's an actual pyramid scheme, but that doesn't mean it's a good business opportunity. He said if you're thinking of becoming a consultant in a business like this one, you need to find out how many other people in your area are selling the same product and how much they're making, which is often difficult to determine.

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