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Thousands of Women Say LuLaRoe’s Legging Empire Is a Scam (bloomberg.com)
63 points by prostoalex 27 days ago | hide | past | web | favorite | 45 comments



"In March 2016 she paid $9,000 to become a LuLaRoe consultant."

Uh, your first clue is that you don't usually PAY companies for the privilege of becoming an employee.


I'm not defending multilevel marketing pyramid schemes but if you are signing up for one, you are not an employee. You do pay to run certain types of companies (franchises). But if the franchise isn't supporting you then you are being scammed.


The difference between a franchise and a pyramid scheme is that a franchisee only sells products to consumers/end-users, not the franchise/brand itself.

It might sound like a subtle difference, but the incentives as a result of both business models are quite different.

Franchise sellers for example WANT their franchisees to operate the franchised business well. It is a "if they make money, we make money" situation. A pyramid seller only wants their agents to grow the pyramid, and they make money from sign ups even if everyone below loses money.

One is trying to create successful businesses, the other is trying to drain sign up fees from as many people as possible.


> The substantial difference between a franchise and an pyramid scheme is that a franchisee only sells products to consumers/end-users, not the franchise itself.

Not true. Most franchisors make a royalty from sales, but also make a profit from being the exclusive distributor of everything in the franchise - napkins, cups, food, etc.

Your general point is correct though.


I don't understand the "Not true" there.

I said the franchisee only sells products to consumers/end-users, not the franchise itself. It isn't a chain-sign up situation.

Your point seems to be that the franchise makes money from franchisee reselling, but I never said otherwise...


It looks like the GP possibly misread your comment and missed the extra 'e' on 'franchisee' in the first sentence.


I'm not convinced franchises aren't far off from pyramid schemes and MLM as well.

https://en.wikipedia.org/wiki/Franchise_fraud

Math on a McDonald's franchise is here-

https://www.mymoneyblog.com/mcdonalds-franchise-cost-vs-prof...

"But if you spend 40 hours a week and only keep tabs on one location, it might really feel like you bought a job."

It's looking like 5-6% net return is what you get which is worse than an index fund and you are working your ass off keeping the business running.


Franchises are nowhere near MLMs.

Franchisees don't make the majority of their income from recruiting other people to become franchisees.

Franchisees don't have "parties" where they utilize social pressure to get people to make sympathy purchases of things they don't want or need.


I have to add here, the FTC found that 99% of people lose money in MLMs. This is obviously untrue with franchises.

https://www.ftc.gov/sites/default/files/documents/public_com... [PDF]


They're similar, but I think the main difference is franchises aren't multi-leveled — they traditionally only have a single level between franchisor and franchisee.


How many individual people are buying new franchises these days?

I can't say with certainty, but my impression is that most McDonald's (and other fast food chains, possibly other franchises as well) locations are then owned by semi-regional operators that run a number of franchises. Around here, I know most of the McDonald's are run by 1 corporation. Same with the Burger Kings. It was the same way where I lived previously.


My impression is that McDonalds' margins are shrinking, forcing franchisee consolidation.

Where margins are still fat, you'll find more one-off franchises. Chick-Fil-A, for example, used to limit "Operators" to one store. Real Estate agents are often franchises.


It's disguised as "inventory." Slightly more defensible than "buy a set of knives to get a job," but not much.


Not specifically about LuLaRoe, but The Dream[1] is an excellent podcast series about MLM’s, why people get sucked into them and why they’re not illegal (even though they probably should be).

1. https://www.stitcher.com/podcast/stitcher/the-dream


Another great resource to learn about MLMs is Reddit's r/antiMLM. Judging from its activity, it looks like people are getting really fed up with these companies.

https://www.reddit.com/r/antiMLM/


I can't help but think that Americans let these companies off the hook by referring to them as "MLMs" in the first place.

In the UK, we call them "pyramid scams", which is a much more accurate and damning term.


Defining LuLaRoe as a "legging empire" is simply wrong. They are a weak-minded-person manipulation empire. Their competitors aren't clothing retailers, they're other MLMs, all targeting the same weak-minded people. That's what they sell. The prey on the weak-minded--those who would have their own dreams sold to them--and then wrap it up in fancy English to make the FTC happy.


"--and then wrap it up in fancy English to make the FTC happy."

The wool is being pulled over 0 peoples (in power) eyes. Everyone (again, everyone with power) knows what is going on, including the FTC.

MLMs target those particularly vulnerable to their pitch. They leverage their information asymmetry (almost everyone will lose money in a MLM to the benefit of those above) and as you say, hide what the reality of what the "business" really is with lifestyle fantasy and rhetoric marketing.

I consider myself maybe a little smart in a few very specific areas - that has not stopped me from being outsmarted or taken advantage of at times I and think this is true for most people at some point. Labeling victims as weak minded is a simple way of dismissing the wrongdoing done by MLM actors with far more resources and power than their victims.

What they do should be illegal, and the simple reason it's not is MLMs donate lots of money to lawmakers.


A pyramid scheme...sorry..."Multi-level marketing" company is accused of scammy practices? Color me shocked!

There are whole blogs, podcasts, message boards, etc that are all about showing how multi-level marketing is just a flimsy set of guidelines to be able to legally dodge being busted for pyramid scheming.


The article makes it pretty clear that LuLaRoe went above and beyond even the normal MLM scuzziness:

> [A]t the national level the job of spotting [pyramid schemes] falls to the U.S. Federal Trade Commission. It primarily does this by checking to see if a company abides by a standard established in the wake of a 1972 lawsuit against a now defunct beauty products company called Koscot. The Koscot standard, as it’s known, says that while a company can compensate people for recruiting new sellers, it can’t base that compensation on how much inventory the recruits buy. Most state laws, including California’s, also require compensation plans to be based on sales.

It’s a simple rule. The DSA requires it of all its members. LuLaRoe didn’t follow it for the first four years of its existence, instead basing its bonuses on wholesale orders. For a while it apparently neglected to track what types of clothing actually sold.


“The Dream” was a great podcast on the topic.


When your business is built on buying product in large quantities with unknown SKUs. And most of the product you buy is unsellable. It’s laughable to compare to a normal company which buys what they sell, and the specific patterns, sizes etc.


The Dream is a wonderful podcast describing a lot of these scams. I highly recommend it.


Google Autocomplete is very instructive here.

Lularoe is a ....

Lularoe is a cult

Lularoe is a pyramid scheme

Lularoe is a ripoff.

That’s enough information for me.


I would be wary of trying to use Google autocomplete for making any important decisions. Until they blacklisted showing autocomplete results for queries that look like "Why are <ethnicity>..." or "<ethnicity> are ...", you could get some interesting but certainly not trustworthy results.


They said it was informative, they didn't say anything about making important decisions.

It shows you what is often searched for which is informative, even if in that case it shows that racism is common (which arguably is informative within itself, albeit depressing).

Personally I like doing "[Something] Vs " to see what people consider are competitors. For example: "hacker news vs " returns:

- "hacker news vs reddit"

- "hacker news vs slashdot"

- "hacker news vs code"

etc.


I know you're mostly joking, but you'll get the same for any conspiracy:

Fluoride is ...

Fluoride is bad

Fluoride is toxic

Fluoride is poison


All of these are true! Except maybe the first one, which is a gross oversimplification.

"The dose makes the poison" is not something I expect an average Google user to have modeled accurately.

Edit: after reviewing other examples in this thread, my opinion of an average Google user has fallen drastically. Was mostly having a laugh at the fact fluoride salts are generally a thing I avoid, which seems to be the intuition represented by your example.


[flagged]


How did you manage to use emojis on HN?


I think HN stores text encoded as UTF-8, so all you need to do is input an emoji via your keyboard/copy-paste.


this should have a (2018) ?


[flagged]


I don't think your comment should be downvoted simply because it seems to point women in a negative light. Maybe using "falling for" wasn't the right choice of words.

It is something that should be addressed and looked at. Along the same lines of MLM's offering flexible schedules, more women are realtors than men. (https://www.trulia.com/research/is-real-estate-a-mans-or-wom...)

I've read in the past that women excel at realty because they are better at networking, building relationships, and are more trustworthy among the real estate un-educated. I think the same forces come into play in MLM - women trust other women and what they're selling and are sold on the "just build out your network for success" message that MLM's seem to thrive on.

The only issue is that realty can lead to success, while MLM's are designed from the very start for people to fail.


It’s more that they are targeted at people who are stable who want to bring some money in on the side without have a normal job. It’s even more rampant in transient families (military) when the employeed person gets orders to move somewhere else. If they had a traditional job, they would have to quit and find a new one.


Like others are saying, women are targeted way more, one example:

So one of the things is that MLMs have sort of succesfully branded themselves as not-a-job in a lot of cases. A large chunk of religious fundamentalists see women working outside the home as sort of against Gods will BUT single income houses are harder to maintain these days, especially if you have a bunch of kids. Enter MLMs telling these women A) it's not like a reeeaaalll job B) you can make money to support your family.


Most MLM's tout a flexible working schedule which women tend to prefer due to being saddled with a higher average proportion of the child-rearing and elder-care responsibilities.


Women are probably somewhat more likely to participate independent, no-fixed-location, social product sales businesses (including MLMs, which often are pyramid schemes) then men, for a number of reasons, including the continued influence of traditional gender roles.


In r/antiMLM they sometimes talk about "financial advising/consulting" pyramid schemes involving either selling information on stocks or weird funds, and those disproportionately target men. (And reading Gang Leader for a Day, apparently for some proportion of inner-city boys selling drugs is a pyramid scheme of sorts.)

Women usually spend more on products, and pyramid schemes are definitely targeting consumers by dangling the carrot of helping them pay for the product they are consuming so much of, so it'd make sense that they'd mostly be made up of women. It's not always "falling for" in the sense that women are not always caught up in the scammy part; sometimes they really like the product that much, and sometimes it's a social thing that they're OK paying for to stay in the community. If anything that there exists consumers of pyramid schemes that are OK partaking in the pyramid part but not taking it seriously makes it worse, because it legitimizes the whole activity in the eyes of a) uninvolved husbands/bystanders and b) potential marks who are really falling for it.


Yes, but it's likely because MLMs are more often marketed to them. The general pitch for these types of companies, as mentioned in the article, is "work from home selling <product> to your friends online so you can spend more time with your family".

This is like saying children are more likely to waste their money on toys, or young men are more likely to fall for military recruitment propaganda. It's "true", but it's got some weird correlation/causation misunderstanding.


Correlation is not causation.


Women are more likely to be at home with the kids and looking for additional income and something to do, and might also be shut out of the traditional workforce in a lot of places. They generally prey on marginalized groups — after all, if a regular middle class job were an option, would you do this?


I know a bunch of ladies who did LuLa Roe.

It's not that they are more prone to falling for the business side of it, it's that they were attracted to the company for reasons besides the money they could make.

All of them were extremely happy LulaRoe customers BEFORE they became sales people.

I think if an MLM targeted the people on hacker news with a product that could make a solid side income through Programming meet-ups, mechanical keyboards, or video games, it would get a lot of us. Even if 2/3's of the people who attempted to make money the same way lost money on the MLM.


My wife unfortunately got involved with LulaRoe. She was a stay-at-home mom for a little while and wanted to help out the family by bringing in some extra income while still keeping the flexibility of being able to stay at home with our child. She loved their clothing and had a few friends who were also starting up selling so she felt some sense of community with them. They also sold her hard on the idea that the market was just starting up and she could get in on the "ground floor" and make a good amount of money if things went well. She'd spent pretty much her entire work life in food service and cafes and she always wanted to run her own business and have that level of independence so that she could "break away" from the service industry.

The reality was she ended up losing a lot of money, working 60-70 hours some week just to keep up with customer requests (most of which was returns and asking if she had a specific print in a specific size), and eventually burnt out with how difficult it was and how much back-and-forth the company was giving her (they had a policy where you could return product, then they totally changed the policy, then they changed it back, then changed it again). They also required that she kept up with inventory purchasing quotas, and if she didn't buy enough inventory within a certain amount of time she was cut off from selling at all and she wouldn't have access to their resources or sales systems.

She's not unintelligent and did realize the risks involved. She was just wanting to help out our family and build something for herself, and that's where I think a lot of these companies come in to feed on that desire for independence and flexibility. It was a difficult lesson for her to learn and really demoralizing.

She now runs her own cafe and is doing quite well at it, so I don't think it was her lack of business acumen that kept her from being successful.


I remember this being part of the pitch of Avon -- you're already buying laundry soap, why not build a business?

Of course, at the bottom of the pyramid, you'd buy overpriced soap to keep up your minimums.


Avon is an interesting case because they started out as a legitimate direct sales company, not an MLM. I'm not sure when they turned into an MLM.

Avon's business model made much more sense back before we had mega retailers and the internet.


(cough) blockchain coins are pyramid schemes too (cough)




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