Kate Hudson's wildly popular athleisure company is trying to shake its scam reputation

Kate Hudson Shows Off Fabletics Underwear on Instagram
Kate Hudson Shows Off Fabletics Underwear on Instagram

Kate Hudson's wildly successful athleisure company, Fabletics, is turning over a new leaf by opening stores and changing some practices that led people to call it a scam.

In September, a BuzzFeed report shed light on how Fabletics' parent company, Just Fab, had thousands of complaints for billing customers on a monthly cycle. It was the first sign of trouble for a company that says it's on track to make $650 million this year.

JustFab is one of many retailers that operate on a subscription model, a trend in the industry that has been criticized for misleading customers into memberships that are notoriously difficult to cancel once you sign up. Many customers buy a single outfit without realizing they are locked into a membership.

After criticisms about memberships, Fabletics planned an audit, and said it would examine how it did business.

Months after the scandal, the company has added more disclosures, including a video notification, so people realize they are signing up for a subscription, new Corporate Marketing Officer Shawn Gold said in an exclusive interview with Business Insider. It's also added around-the-clock customer service and lets people return online orders.

Fabletics is also testing online cancellation that will roll out nationally in the next couple of weeks. Customers who wanted to cancel before had to call customer service during business hours.

The company has recently announced plans to open up to 100 brick and mortar stores over the next three years.

Gold likens the stores to showrooms for the product that people see online, and CEO Goldenberg told Forbes it was a way to get more people to sign up for memberships.

Fabletics faces mounting competition.

The athleisure market becomes more saturated by the day — to the point that there's even an up-and-coming subscription athletic apparel brand called Fitbox that on the surface is very similar to Fabletics.

Gold said that the subscription business model can easily go awry.

"It's a new business model, so a lot of the companies that are executing this business model are startups that are trying to figure out the business." This can lead to problems, from failing to properly disclose the membership billing cycle to not delivering the products efficiently.

Gold says the product stands on its own, and that it is similar to Lululemon. In fact, the company uses the same mills, he said. But Fabletics is devoid of the culture and experience that Lululemon sells. (Fabletics has not been shy when it comes to jabbing Lululemon; it blatantly mocked the athletic apparel company in a series of marketing videos.)

Lululemon happens to be one of the few companies that hasn't fallen down the rabbit hole of offering extremely discounted apparel, proving that consumers are willing to pay if the goods are worth it.

For now, things are looking up for Fabletics.

CEO Goldenberg told Forbes in February that complaints had dwindled to only a few per month, from hundreds before.

"All these things are really from just listening to the consumer and trying to give them what they want," he said.

See images of Kate Hudson through the years:

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