At 25, Pamela Winkelman was divorced with two children to support. She had a job in the medical field, but she wanted more.
Then she found a boutique with items unusual for St. Cloud: exquisite dresses, fancy hats, flashy head-to-toe ensembles. And they carried Winkelman’s size.
“I was still just learning to love myself... regardless of what size I wear, or what the scale says,” she recalls. In those clothes, “You knew you looked nice.”
Her friendship with the owner convinced her to open a boutique someday. It would be a decade before an acquaintance recruited her into LulaRoe, a clothing company that, as Winkelman understood it, functioned as a wholesaler selling directly to independent entrepreneurs.
According to company lore, Deanne Stidham was a mother of seven when she first started selling wholesalers’ clearance items to friends and family. Deanne and husband Mark launched LulaRoe as a way for women to live out the dream “to be at home, be a mom, and provide for her family.” The company’s guiding principles: “I believe in you and you can do it.”
LulaRoe sold these work-from-home women not just clothing, but a chance at professionalism. Entry-level sellers were called “consultants,” while those who recruited additional saleswomen were “sponsors,” getting bonuses based on their recruits’ purchases from the company. The “leadership” scheme climbed two more tiers, with “mentors” at the top.
A Business Insider story from 2016, just months after Winkelman joined, reported LulaRoe was “making millennial moms rich.” “Tens of thousands” of them were collecting “massive profits.”
Company policy dictated Winkelman spend more than $5,500 on inventory, and moving that merchandise in the St. Cloud area was “easy” at first, she says. “People around here hadn’t even heard of [LulaRoe]. It was something we didn’t have at the time, so there wasn’t a lot of competition.”
Working with a friend, Winkelman, who remarried and had a third child, hawked clothes through Facebook and pop-ups at her home. LulaRoe also placed Winkelman into private Facebook groups, where she was constantly shown the “incredible money” other women were making.
“They would post screenshots saying their pop-up party ended with $5,000 in sales,” Winkelman says. “That’s unbelievable.”
Especially to most of the people who joined the company after Winkelman did. From fall 2016 to spring 2017, the number of LulaRoe sellers doubled, from 38,000-something to more than 75,000. In a follow-up story based on leaked company data, Business Insider backtracked: Less than 20 percent of LulaRoe participants had cracked $5,000 in sales in February 2017, and more than 10,000 sold nothing at all.
It didn’t help that the quality of some items was, in Winkelman’s word, “crap.” Leggings, marketed as “buttery-soft,” had always been LulaRoe’s signature product. But reports began to pile up of leggings coming apart at the seams after only a few washings.
Winkelman, meanwhile, had grown tired of staying up after everyone went to bed to post photos of clothes. Yet she still had designs on starting a boutique. LulaRoe sells leggings for about $10 a pair to its clients, who then sell them for about $21 to customers. But when she paged through wholesale clothing catalogs, she found almost identical leggings for $1 a pair, she says.
“The more I found, the more I found out about the company, and who it is they’re using.”
At least LulaRoe allowed its distributors to send unsold clothes back to the home office. Until September, that is, when the company changed its policy: Sellers would now receive just 90 percent value, and had to pay for shipping. Seasonal and discontinued items could not be returned, nor could clothes removed from their packaging.
The change was the last straw for Winkelman. She took a page from the LulaRoe game plan, forming a private Facebook group to spread the word. Her “Seeking Justice” page now has more than 1,000 members, many of whom are on the ground floor of a class-action suit filed in California.
The complaint accuses LulaRoe of running a pyramid scheme, and falsely advertising “part-time work for full-time pay.” As noted in the lawsuit, consultants were “inundated with the slogan ‘buy more sell more,’” and many followed it to desperate ends. Some maxed out credit cards. Others took out private loans. Winkelman says one woman in her Facebook group is $55,000 in debt.
LulaRoe says the claims are “baseless, factually inaccurate, and misinformed,” adding: “Our success has made us the target of organized competitive attacks and predatory litigation.”
Mark Stidham said only someone with an “uneducated opinion” would think LulaRoe’s structure—with its four tiers, money trickling ever-upward, and everyone enlisted to recruit new members—is a pyramid scheme.
Even Pamela Winkelman acknowledges LulaRoe’s telling the truth about one part: The company is phenomenally successful. But it’s not in the business of selling clothes, she believes. It sells women on a new version of themselves, as self-made entrepreneurs, remaking their lives without leaving home or logging off Facebook.
“Now that I’m out,” Winkelman says, “I cannot believe how much money I spent ordering from LulaRoe. But when you’re in that world, it’s almost like a cult.”
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