Lured by the promise of big bucks and a chance to run a business from home, Roberta Blevins quit her job as a hair stylist in 2016 to become a full-time “consultant” for LuLaRoe, a California-based multilevel marketing company that makes leggings and an array of colorful women’s clothing. The popularity of the brand, not found in retail stores, was soaring mostly due to an army of independent contractors like Blevins. They paid out-of-pocket for products from the company and sold them at a markup to friends, family members and social media followers.
Blevins paid about $9,000 for her first boxes of inventory and continued to do so to meet the company’s purchase requirements and stay affiliated as a consultant. “I bought into the propaganda: ‘part-time work for full-time pay,’” Blevins says.
And it worked.
Blevins quickly moved up the company’s hierarchy, and within 20 months she’d racked up $83,000 in sales. She also received $65,000 in bonus checks and a cut of the sales generated by her own band of distributors—people she recruited who then recruited more sellers under them.
At LuLaRoe, this was the compensation structure. Money was transferred from those at the bottom to those at the top. These “uplines,” like Blevins, were the early joiners and mentors who reigned over huge “downline” teams, raking in six-figure annual bonuses unrelated to their own direct sales.
Blevins herself cleared only $5,000 in total sales during that 20-month period. She spent $78,000 on inventory, which started to arrive damaged—moldy garments and ripped clothing that Blevins was unable to sell and unable to get refunded by LuLaRoe. By that time, she was growing skeptical of the company’s mismanagement and its cult-like culture. “All my little bells started going ‘ding’ and I realized that this wasn’t a business. And if it wasn’t a business, what was it?” Blevins says.
In reality, LuLaRoe was a billion-dollar, multilevel marketing (MLM) scam—a pyramid scheme in which contractor recruitment, not product sales, was the path to riches that benefited only those at the top tiers. At its high point, the company employed more than 80,000 consultants, the majority of whom were workhorses at lower tiers struggling to make ends meet.
LuLa Lawsuits
In 2019, the Washington State Attorney General’s Office claimed in a consumer protection lawsuit that LuLaRoe was operating as an illegal pyramid scheme. The lawsuit was settled in February 2021, with LuLaRoe denying any wrongdoing, but paying out $4.75 million—funds that will go to only 3,000 or so of its former consultants as well as to other state residents who received inadequate products. More than 100 consultants nationwide have filed for bankruptcy, and the company faces dozens of other lawsuits from former employees, customers and its former supplier.
The company’s rise and fall is the focus of an Amazon Prime docuseries, LuLaRich, which provides a rare (and shocking) look at how a multilevel marketing scheme can go wrong and eventually collapse under its own weight. The disturbing revelations in LuLaRich are also raising more questions about MLMs and what makes a company a legal business versus an illegal pyramid scheme.
MLM advocates, for one, have taken pains to stress that legitimate MLM companies rely on sales, not enlisting new recruits. In September 2021, for example, along with the release of LuLaRich, the Direct Selling Association (DSA), a trade group mostly comprised of MLMs, swiftly rose to the defense of its members, issuing a press release emphasizing that the series described “practices prohibited” by its code of ethics, including large up-front costs for newbies.
But there’s another camp—academics, business consultants, consumer watchdogs and former MLM sellers, to name a few—who maintain that there’s a darker truth behind the hype. Their position is that some MLMs are a rigged game that depend on a revolving door of new recruits. If that supply dries up, the pyramid collapses. “This is not an industry I would recommend,” says William Keep, a professor of marketing at The College of New Jersey who has been a critic and academic researcher of MLMs for more than 20 years. “MLMs are a risky proposition and not something people should put their hard-earned money into.”
The Rise of MLMs
All the same, MLMs are as American as apple pie, descending from salesmen of yesteryear peddling their wares. The first “Avon ladies” were salespeople for the California Perfume Co., which recruited women to distribute its products door-to-door in 1886. These sellers were an early example of American women aspiring to be “financially independent” by leaving “no door unopened, no bell unrung.” Next came the “home party” model, pioneered by Tupperware in the 1940s. As an increasing number of women joined the sales force after World War II, “women selling to women in someone’s home with food and drink became an industry staple,” Keep says.
Keep credits the vitamin company Nutrilite as the first adopter of an MLM strategy in 1945—offering not just products to sellers but also a “business opportunity” to earn money by
recruiting, training and supervising new people in the sales force. Large MLMs (Amway, Avon, Herbalife and Mary Kay, among others) refined and popularized this business model over the decades and continue operating today as recognizable household names.
In recent years, MLMs have been fueled by social media, which allows sellers to aggressively market themselves and their products from the comfort of their homes through platforms like Facebook, Twitter and Instagram. (TikTok announced a ban on all direct selling content in late 2020.) MLMs are best known for promoting the latest “pills, potions and lotions,” with one in three of the companies selling wellness products, one in eight selling personal care and one in 15 selling clothes or accessories, according to the DSA. But MLMs are also found in other niches, including cookware, travel products, sex toys, insurance services and even cryptocurrencies.
Today, the DSA estimates that there are about 1,100 U.S.-based direct selling companies in operation at any given time. Most of these businesses are privately held, so they’re hard to track, says Nancy Burke, the organization’s vice president of membership. Income and earnings disclosures, numbers critical to understanding how these companies operate, aren’t required by U.S. regulators, and information posted on company websites often isn’t reliable. “It’s a very opaque industry and we really don’t know what’s going on,” says Douglas Brooks, an attorney who has spent the past 30 years representing the victims of deceptive MLM schemes as part of his legal practice.
Broke or Breaking Even
Industry advocates say that the MLM model appeals to business owners because it gets their products in front of customers more quickly and with less overhead. For sellers, MLMs theoretically require little or no sales training and have lower pay-in than other gig work, like becoming a realtor. The average cost of a startup kit for a DSA company seller, for example, is $82.50.
The chance to become an entrepreneur, have flexible work hours and make big money is at the heart of many MLM pitches. But statistics show MLMs are not the best place to earn career-level salaries. The average direct seller made about $5,208 in retail sales in 2020, according to the DSA. But the very top salespeople can see substantial earnings. In 2020, the top 1% of distributors of Herbalife Nutrition, for example, earned more than $16,000 a month, according to company documents.
Other research paints an even bleaker picture. A 2011 report by the Consumer Awareness Institute estimated that 99.6% of MLM sellers lose money. A 2018 report by the AARP found that nearly half of MLM sellers surveyed lost money and one in four broke even. In another 2018 survey of 1,049 MLM sellers involved with at least one company over a five-year period, most made less than 70 cents an hour, one in five never made a sale and nearly 60% earned less than $500 in sales.
Even the U.S. Federal Trade Commission (FTC), which enforces laws and regulations related to MLMs and pyramid schemes, advises caution: “Most people who join legitimate MLMs make little or no money” and, in some cases, the company turns out to be an “illegal pyramid scheme that steals everything they invest and leaves them deeply in debt.”
Momtrepreneurs Beware
Even with the odds stacked against them, women in particular continue to look for success in MLMs and make up the lifeblood of its workforce. Three out of four direct sellers are women, according to the DSA, though the majority of MLM chief executive officers are men. While MLMs may seem like a form of female empowerment, with sellers popularly dubbing themselves “boss babes” and “momtrepreneurs,” the business model works against this notion: The pressure to sell and recruit tends to feed off and exploit female relationships.
“MLMs prey on the vulnerable,” says Blevins, who was a new mom when she joined LuLaRoe in the hopes of finding work that didn’t disrupt her family life. Recruitment can be veiled through invitations for coffee meetups or house parties, where the pitch is made to the unsuspecting guests. Then there’s the copied and pasted emails or texts that commonly start with a greeting like “Hey Hun,” followed by photos flaunting a luxury cruise or vacation, Blevins says. “The message is usually along the lines of ‘look how great my life is and you can have this too if you do what I do,’” she adds.
Grace LaConte, who now runs her own business consultancy, says she thinks a lot of women get pulled into MLMs because they grew up with them. “MLMs have been normalized,” LaConte says. “I went to house parties with my mother that were hosted by distributors for various MLMs—it was part of the social fabric of our neighborhood and church life.”
As a result—and as a vulnerable college student looking to make some extra cash—LaConte was open to joining an MLM that sold beauty products, which she prefers not to name. She was befriended by a married student, who was also a recruiter for the company, who pressured her to stock up on inventory and then stopped responding when LaConte’s sales decreased. “These are the cult-like tactics they use,” LaConte says. “You’re told how wonderful you are and made to believe these people are your friends and allies, but as soon you start failing, you’re cut off and treated like garbage.”
Though LaConte became a top seller early on, her life started to get more difficult. “The process of joining an MLM kind of snowballs,” she says. “You start with an initial joining fee, but then you’re convinced to invest in business cards, order forms, catalogs and new products. You have to buy samples to give away. You’re told it’s important to have an excess of products available to fill any orders quickly.”
LaConte quit the MLM in less than a year. But five years later, after she was married and trying to start a family, she signed up for another one—this time a skin care company—at the urging of a co-worker. When she received her first order, the product quality was so poor that she couldn’t even give the bottles away for free and stopped paying the required monthly fees. “Knowing what I know now, I can’t believe I got sucked into MLMs twice,” she says.
Becoming a Hunbot
Many first-time MLM sellers are between the ages of 18 and 25, and nearly half leave the business within a year.
Kalyn Brooke lasted only nine days as a consultant with Mary Kay, an MLM best known for rewarding its highest achievers with use of a pink Cadillac. While she’d purchased the starter kit at a discount—around $100—it mostly contained product samples and just a few bottles that could actually be sold to customers. In a call, her upline told her the starter kit was just to “get her in the door,” and that she’d have to buy more inventory up front. Brooke had already spent money beyond the starter kit on new business cards, setting up a website so customers could place orders online and a credit card processing program—all services provided by Mary Kay for additional fees.
“I figured I could just put in orders as I got them, but my recruiter said ‘no, no, that’s bad customer service, people don’t want to wait.’” She suggested Brooke purchase up to $3,000 worth of inventory, even though the company’s minimum at the time was $400 per quarter to stay active. Her upline said that if she couldn’t afford it, she should take out a bank loan.
“A red flag went up,” Brooke says. “She was pushing me to get a loan for a big order so she could earn a bigger bonus.” She quit.
When MLM sellers fail, they often think it’s their own fault. At least, that’s how Alanda Carter, an instructional designer, felt. Several years ago, she joined Beachbody, a fitness-based MLM. “Personal development is a kissing cousin to MLM culture,” Carter says. “You’re told everyone can do it but that you have to work hard and be the best version of yourself; that if you just have the right mindset, you can change your life.”
And Carter bought into all of it, literally. She ended up $20,000 in the red after two years with the company. “I didn’t know what a MLM was,” says Carter, a fitness enthusiast who saw the opportunity as a way to switch careers. She signed up to become a “coach,” purchased an expensive starter kit and spent extra money to become certified in two of Beachbody’s fitness programs. “I thought I was investing in my business, but then I realized there was no business,” she says. “There were just all these hidden costs. I had become a ‘hunbot’”—a term for women falling prey to MLM schemes.
Beachbody is among the minority of MLMs that release an income disclosure statement, though the numbers can’t be verified. In its 2019-2020 statement, about 76% of its entry-level coaches earned nothing. Those who did earn commissions averaged $439 for the year. And those select few in the highest rank? About $117,000 to more than $3 million.
The Anti-MLM Movement
As an MLM seller, you may have a sole proprietor business, but you don’t have much control over it, LaConte says. “MLM sellers forgo all kinds of controls that true business owners have,” she says. “You have no influence over the products you receive, how those products are created, what marketing techniques are used, or what pricing or payout structures are in place.”
A growing number of MLM contracts with sellers also include legally enforceable gag orders, Brooks says. Buried in the dozens of pages of paperwork are non-disparagement clauses that prohibit sellers from stating anything negative about the company, its products, services or leaders. The contract can also include class action suit waivers and arbitration clauses. “These are sophisticated commercial contracts and people tend to agree to a lot of stuff they don’t understand,” Brooks says.
Legal implications are one reason why people who have been burned are reluctant to come forward, along with the “culture of shame” around failure in MLMs, says Shana Mueller, director of communications for TruthinAdvertising.org (TINA.org), a nonprofit that deals with false advertising and deceptive marketing. The watchdog group, she says, regularly receives tips (mostly anonymously) about potential MLM scams.
But in recent years, there’s been a noticeable shift. The same technology—the internet and social media—that’s bolstered MLMs is fueling the rise of an anti-MLM movement. Reddit’s anti-MLM thread is regularly updated, with 739,000 followers posting about problems with MLMs, usually through unidentifiable monikers. On the website “Pink Truth,” run by a former consultant with Mary Kay, women share their (mostly negative) experiences as sellers with the company. On various YouTube channels, former MLM sellers have morphed into pseudo-celebrities, attracting hundreds of thousands of viewers to dramatic and often funny anti-MLM content. For example, one clickbait title on YouTube, “Why I Quit the MLM Industry at the Top/Anti-MLM Horror Story,” has attracted more than 860,000 views.
Blevins, who now hosts a podcast, Life After MLM, says her goal is education, not sensationalism, about MLMs. Post-LuLaRoe, she continues to pay off accumulated credit card debt and says she suffers from depression and anxiety. “The younger generations are more into authenticity,” she says. “I hope by educating them about MLMs that they’ll be less susceptible to falling for the lies.”
LuLa Reinvention?
Industry advocates maintain that anti-MLM influencers on various online forums lump all MLMs together without distinguishing between those that are FTC compliant and those that have violated established laws.
DSA membership, for example, is contingent upon a code of ethics. But less than 50% of all applicants are accepted each year, mainly because the majority can’t meet those standards. Today, the DSA has about 105 members that it has carefully screened, and only some of them use the MLM model.
Even so, a 2017 investigation by TINA.org found that more than 97% of DSA member companies engaged in misleading marketing schemes that peddled false and unsubstantiated earnings claims when trying to persuade prospective distributors to join their networks. The nonprofit has also investigated the business practices of hundreds of MLMs and has sent complaint letters to various government agencies. “This is not just about one or two companies that are bad apples,” Mueller says.
Those kinds of misdeeds are holding true during the COVID-19 pandemic, which seems to have created an economic opportunity for MLMs—in 2020, they saw a nearly 14% spike in annual direct sales and a 13% increase in the number of sellers compared with the year before. The DSA is also forecasting record sales growth for 2021.
The FTC currently oversees MLMs on an individual case-by-case basis and, in the past 42 years, has filed 31 cases against MLMs alleging that they were operating illegal pyramid schemes. In 29 of these, the FTC essentially won in court or obtained a favorable settlement. But in late October 2021, the FTC made a big move, putting the MLM industry on notice for using deceptive income claims, Mueller says. This action—called a penalty offense program—means companies face the potential to be fined as much as $43,792 per violation.
Regulatory actions can be time consuming and expensive for MLMs and have put some permanently out of business. Others, like AdvoCare, a health and wellness product MLM, have been forced to reinvent themselves. The company settled with the FTC in 2019, agreeing to pay out $150 million, and then announced a revision of its business model to a direct-to-consumer and single-level marketing compensation plan. As a result, the company terminated 100,000 of its distributors. (Advocare declined to comment.)
LuLaRoe, which was targeted by state regulators, has also stayed in business as an MLM company. But it now has 17,000 retailers (no longer “consultants”)—five times fewer than what it had pre-settlement—and requires $499 (compared with $5,000) to join. According to its 2020 income disclosures, 50% of its retailers made between $1 to $4,999. These figures remain unverifiable and Blevins, for one, is a skeptic. “I don’t believe anything LuLaRoe puts out anymore.”
Linda Keslar is a metro-Atlanta-based writer. Her work has appeared in The New York Times, The Washington Post and more.
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