All MLM Businesses Are Pyramid Schemes As Far As I’m Concerned

You read the title right and you know I’m right. There’s no need to discuss it any further, except that a saleszombie from one of these pyramid schemes recently annoyed me, so I have to call out the latest pyramid scheme to hit the Internet – Lularoe.

The problem occurred when I actually was trying to sell a pair of Lularoe leggings I was sent for review over the holidays by the company’s marketing manager Shana Frahm. Aside from a solid black pair I occasionally wear under my pants, it’s the only pair left from the raid my deceitful exroommates made over the winter out of desperate greed.

Lularoe Leggings

In the process, I came across another of our favorite ridiculous online villains – a Facebook admin who let the imaginary power of administrating a Facebook page get to her head. Because I jokingly referred to Lularoe as a pyramid scheme (which, like Herbalife, Mary Kay, Amway, and others, it absolutely is), this ridiculous woman went overboard and removed me from a group unrelated to anything to do with her position with Lularoe.

That blatant abuse of power so willingly committed by someone so dedicated to the brand her Facebook name is Lularoe Katie instead of just Katie was all I needed to confirm the suspicions I already had.

It’s not Katie’s fault she’s forced to use strong-arm tactics; she has to recover her investment, so she has much more at stake than a front-line Walmart employee.

Although I do own and wear a pair of Lularoe leggings, the cult-like mentality (which I’ve not seen so vividly up close since my visit to the Scientology capital of Clearwater, FL) and Donald Trump-like inability to take criticism (instead attempting to silence any naysayer) are clear signs that there’s a scam to beware of, regardless of how shiny and new the clothes are.

The Company You Keep

While there’s nothing particularly wrong with the product itself, Lularoe has an insane business model that alludes to its scam status. And it’s not the network marketing aspect.

Lularoe’s founder DeAnne Stidham, isn’t a fashion designer at all – she’s a network marketing pro who figured out how to use clothing as a commodity. By creating the image of scarcity, she tapped into the Pokemon Go collector in all of us by creating “unicorn” patterns. The above pattern (which I call “Saved by the Bell Black”) is just a normal, zany pattern.

However, what I learned from my old roommates (two lonely, forever-alone women with no lives), getting a simple, solid color like black is considered finding a unicorn (a reference from Gone in 60 Seconds). It’s made especially difficult by the fact you have to sit through an hour-long Facebook “party” with other lonely women peddling their wares to even have a chance at overspending on a unicorn legging pattern.

This freemium business model implemented on Facebook isn’t the part of Lularoe that made it so successful though. It’s not what drives these women to be so cut-throat that the company grew too fast and created a diseased company culture. Katie is part of a bigger problem with these pyramid schemes and one in which Lularoe is a particularly bad offender of.

It costs just under $5000 to purchase your initial inventory to become a Lularoe consultant.

That’s right – $5000.

While we’re all debating whether McDonald’s workers deserve more pay, Lularoe consultants aren’t being paid at all – they’re paying $5000 (about half the average McDonald’s employee’s annual salary) for the privilege of selling these clothes. They’re fighting so hard to sell inventory because they have to, otherwise they’re the customer.

They let this forced motivation of recovering their investment lead them to take any risk, cut any corner, tell any lie, silence any voice necessary to succeed. It’s literally life or death, and that’s the exact scenario labor unions were designed to prevent. Imagine if you had a gun to your head every time you sat at your desk to work.

As Hayley Peterson pointed out in Business Insider the same day this published:

“Maintaining quality is a challenge for any fast-growing brand, but for a company like LuLaRoe, the backlash is particularly serious because it is taking place in the same forums that helped create buzz for the leggings in the first place. LuLaRoe’s customers say they’re having a hard time returning the damaged goods because the company’s sales consultants, who buy directly from the company at wholesale prices, are barriers.

Some consultants, meanwhile, say they’re saddled with the damaged merchandise.”

Entry-level employees are pitted against consumers. It’s so Scientologist in its structure. That’s not how commission sales worked when I worked at Sears or Dillards – the manager took complaints to protect frontline workers.

Why Pyramid Schemes Are Schemes

I’ve explained it time and again, but I will one last time for prosperity. The reason pyramid schemes are schemes is because the entry-level employees have all the liability. When you get a job at Target or Best Buy, you’re not forced to purchase $5000 worth of inventory that you’re then forced to sell in order to get a paycheck.

If that’s how jobs worked, nobody would need a job because we’d already have the up-front we’re working to earn. This is not a Subway franchise you’re purchasing. It’s not even close to the same model. The Subway employees aren’t incentivized to lie to me, recruit me, misrepresent themselves, bully me, and do whatever’s necessary to make my sandwich.

Also, even as a consultant you can’t choose what clothes you get. Everything is randomized and if you only need leggings because that’s all that sold, you still have to buy other clothes that aren’t in any way related to leggings. That’s not how inventory management works.

When a coffee house runs out of decaf, they don’t also blindly order espresso, tea, and smoothie mixes so they can get decaf. It’s the equivalent of buying a new gallon of Neapolitan ice cream every time the strawberry runs out. That’s an incredibly wasteful and inefficient system any normal company would have resolved quickly.

It’s not a problem for MLM pyramid schemes, however. In fact, it’s the main generator of profits. All sorts of business norms are thrown out the window when you’ve trapped your employees into becoming your customers through servitude. It becomes open season in a very incestuous relationship that, over time, degrades the business’s integrity.

Until then, however, DeAnne is going to continue getting rich off the back of blind fools like Katie while women flock like birds to these trendy threads. And since it’s up to us as consumers to determine the market, Lularoe will likely thrive and continue growing for years from it.


Dr. Brian Penny is a former Business Analyst and Operations Manager at Bank of America turned whistleblower, troll, and freelance writer. You can find his work in Cracked, High Times, HuffPost, Lifewire, Forbes, Fast Company, and dozens of other places, although much of it is no longer under his name. Dr. Penny loves annoying fake media.

%d bloggers like this: