Popular MLM LuLaRoe is being sued by its main clothing provider
Published: Dec 07, 2018

The multilevel marketing company may owe more than $33 million — and its founders are accused of using shell companies to hide wealth from creditors.

By Gaby Del Valle@gabydvjgaby.delvalle@voxmedia.com  Dec 4, 2018, 3:40pm EST

SHARE

LuLaRoe’s headquarters in Corona, California.

 Kristoffer Tripplaar/Alamy

The Goods

 

LuLaRoe, the multilevel marketing company known for its colorful patterned leggings, is apparently in dire financial straits: According to a new lawsuit, it’s drowning in debt and its founders are using a network of shell properties to shield assets — including millions of dollars’ worth of cars, properties, and private planes — from its creditors.

In the suit, filed on November 29 in the Superior Court of California in Riverside County, LuLaRoe’s primary clothing supplier Providence Industries claims that it is owed more than $33 million in unpaid bills and is asking for nearly $49 million in damages. In addition to its outstanding debts to Providence Industries, the complaint alleges, LuLaRoe owes more than $4.1 million to other creditors including UPS and Zam Brand Inc., another clothing manufacturer.

But instead of paying their mounting debts, LuLaRoe founders Mark and DeAnne Stidham are using the company’s dwindling revenue to maintain their “lavish lifestyle,” often purchasing luxury goods through shell companies in an attempt to hide assets from the vendors to which LuLaRoe owes money, Providence Industries contends.

On a business trip to Vietnam and South Korea, the suit claims, Mark Stidham told two Providence Industries employees about his plans to buy the property next door to his $7 million Wyoming ranch so that he could have exclusive access to the river that ran between the two properties.

The suit claims that Stidham has purchased at least two Koenigsegg cars, including an Agera RS that costs an estimated $2 million and is one of just 28 in existence, through Ghost Squadron LLC and Inland Motors LLC, two of 17 limited liability companies that the suit tied to the Stidhams. Legally, this means that the LLCs own the cars and Stidham merely has access to them. But several outlets — including Bloomberg, Automobile Magazine, Motortrend, andHagerty — have credited Stidham as the cars’ owner.

Providence Industries also says that despite mounting debts, the Stidhams have no intention of paying the supplier what it is owed. In September, Mark Stidham allegedly responded to requests for payment by saying, “look guys, I am not going to pay you guys a f***ing dime unless the judge orders me to pay it, and DeAnne and I will take our two or three hundred million dollars to the Bahamas, and f***everything.”

When reached for comment via email, a LuLaRoe spokesperson called the allegations “completely without merit” but declined to comment on specifics. In an email to LuLaRoe sellers obtained by Business Insider, the Stidhams similarly claimed the suit “falls into the category of salacious, untrue, inflated and predatory claims targeted to strong arm LuLaRoe into an unreasonable settlement of their unsubstantiated invoices and claims.”

In addition to revealing LuLaRoe’s alleged financial precarity, the Providence Industries lawsuit suggests that LuLaRoe’s business model is untenable. According to the complaint, the company’s revenue dropped from “approximately $200 million per month to $100 million per month” after it changed the way bonuses were paid out to sellers, causing them to leave the company in droves.

The bonus policy initially paid sellers based on how many orders they placed, regardless of how much inventory they sold; the new policy instead paid them based on how much product they actually sold, suggesting that many LuLaRoe sellers were having trouble moving product — and that instead of making money from sales, many sellers were instead profiting off signing up more people for their “downline.”

In November, a high-ranking LuLaRoe seller told Business Insider that she estimated the company’s ranks had dwindled from approximately 77,000 “independent fashion consultants” in February 2017 to just 25,000.

Together with other lawsuits that have been brought against LuLaRoe over the past year, the Providence Industries allegations suggest a company whose founders are enriching themselves at the expense of both vendors and “independent fashion consultants,” the sellers LuLaRoe relies on for the bulk of its revenue.

federal class-action lawsuit filed in January, which calls LuLaRoe a “pyramid scheme,” claims that the Stidhams have “enjoyed the ‘high life,’ which was built on the backs of hard-working women who sought a legitimate business opportunity,” many of whom “have or will suffer losses by virtue of their participation” in LuLaRoe. As of April, there were more than a dozen pending suits against the retailer.

Kylee I., a former LuLaRoe fashion consultant, told me that despite being a successful seller, she never made money with LuLaRoe. “I never actually made money because whenever I made sales, I put that right back into purchasing more inventory until I decided to quit,” she told me in an email. “Making money with LuLaRoe is nearly impossible and they allowed oversaturation of the market while feeding everyone lines like, ‘Do you think Starbucks worries if another Starbucks opens two blocks away?’”

Disgruntled LuLaRoe sellers regularly advertise “GOOB” — going out of business — sales on Facebook, selling products for “rock-bottom prices.” In October 2017, BuzzFeed News interviewed 10 women who lost “thousands of dollars” by selling LuLaRoe, including one woman who says she put $15,000 into her business and got nothing out.

The Stidhams, for their part, seem to see sellers’ inability to make it work as their own fault. “[Y]ou’re stale. Your customers are stale. Get out and find new customers. If you bring a new customer in, then your inventory isn’t stale. The problem is, you try to sell to the same group of people day after day after day,” Mark Stidham told sellers during a May 2017 webinar, as reported by Racked. During another webinar call, DeAnne Stidham reportedly told sellers to “feed [their] children Spaghetti-Os and focus more on sales.”

The latest suit against LuLaRoe claims that the company’s finances have suffered as a result of these scandals, and is suggestive of a company in decline — or perhaps denial.