LuLaRoe sold women's clothing, mostly patterned leggings, through independent retailers who bought inventory wholesale and sold it at parties and through Facebook groups.
At its peak it had around eighty thousand retailers. Entry required an onboarding package costing between roughly five and nine thousand dollars, purchased upfront, frequently financed on credit cards. Retailers could not choose their inventory: they ordered by category and quantity and received an assortment selected by the company, which meant a substantial proportion of every order was unsellable in their market.
Washington's Attorney General Bob Ferguson filed suit on 23 January 2019 alleging that LuLaRoe operated an illegal pyramid scheme, on the basis that the bonus structure rewarded recruitment and downstream inventory purchases rather than retail sales. The case settled for four and three-quarter million dollars in February 2021.
The company disputed the characterization throughout.
Two mechanisms distinguish this case from the two preceding it.
The first is identity. LuLaRoe's culture was explicitly about womanhood, motherhood and Christian faith, and the vocabulary — boss babe, she-EO, sisterhood — constructed a membership rather than a job. Cialdini's unity principle from chapter 12 is the relevant one: persuasion is strongest where the persuader is perceived as sharing an identity rather than merely being similar.
The consequence is that exit is not a business decision. A retailer who quits does not merely stop selling leggings; she leaves a community that has been, for many participants, their principal source of adult friendship and their identity as something other than a mother. Chapter 173's shunning mechanism applies without anyone having to enforce it.
The second is that the descriptive norm was visible and curated. Retailers posted their successes — the cheque, the trip, the rank — on the same social platforms through which they recruited. A prospective recruit estimating her odds sampled a feed composed entirely of people who were doing well and were motivated to display it, and the people with garages full of unsellable inventory were not posting.
That is chapter 268's availability problem, running continuously on a medium designed for it.
Retailers who left were frequently left with debt and with inventory the company would not repurchase on the original terms — a buy-back policy was changed in 2017, which is what generated a substantial share of the litigation.
The clothing was not the product. The membership was.
Cross-ref: Defense — Exit Costs and Identity Traps