LuLaRoe is launching a massive refund program in response to customer complaints that the company's leggings "rip like wet toilet paper" and develop holes after as little as a few hours of wear.
The four-year-old company, which sold $1.8 billion in clothing in the last 12 months, is announcing Tuesday that it will issue full refunds for any defective merchandise purchased between January 1, 2016 and April 24, 2017.
Customers can get the refunds through the 80,000 people who sell LuLaRoe clothing — whom the company calls "independent retailers" — or directly from the company online.
LuLaRoe is also implementing a new policy, called the "Happiness Policy," that's intended to make it easier for customers to get refunds, credits, or exchanges for purchases going forward.
"We listened and we heard the feedback from social media and our consumers and even from our retailers," LuLaRoe CEO Mark Stidham told Business Insider. "If someone has spent money on one of our products, we want them to feel that they got value for that money they spent."
Business Insider reported in February that hundreds of customers were complaining about rampant problems with holes developing in the leggings, which are LuLaRoe's most popular product.
Customers also claimed that many retailers — who buy clothing at wholesale prices from LuLaRoe and then sell it at a markup to friends and family on Facebook and at parties in their homes — wouldn't allow them to return defective merchandise.
At the time, a Facebook group devoted to sharing stories about damaged leggings had more than 1,400 members. Now, the group has more than 26,000 members.
One month after Business Insider's story, two LuLaRoe customers filed a class-action lawsuit accusing the clothing brand of ignoring customer complaints and knowingly selling defective clothes that "rip like wet toilet paper" to enrich the company's top executives.
Stidham says LuLaRoe's unhappy customers represent a tiny fraction of its total customer base.
"It's statistically insignificant — it doesn't exist," he said, comparing the several hundred complaints lodged against LuLaRoe on the Better Business Bureau's website to the 17.5 million garments that the company sold in March alone. "At the same time I don't want to be flippant about that."
'I don't feel we have much to apologize for'
Stidham said the new policies do not represent an apology or a change of course for the company, but rather reinforce the fact that LuLaRoe stands behind the quality of its products.
"I don't feel we have much to apologize for," he said. "I'm empathetic and I'm sorry that [some customers] had a bad experience. But I don't feel that the company is in a place where a blanket apology is necessary."
According to LuLaRoe's internal audits, LuLaRoe's damage rates are "very, very small," he said. "But no matter how small it is, if it's your piece of clothing and the bottom rips out of it, you are not going to be happy."
He said LuLaRoe "will always look for ways to improve quality and style," but the company is not changing its manufacturing process in response to the complaints.
The company has made changes, however, to its quality assurance tests in the wake of the controversy.
"We've added different stretch tests and visual inspections to find small holes," he said. "We also invented a light tower system where leggings can be stretched over it" to help detect any issues.
How LuLaRoe works
LuLaRoe has grown tremendously in the last several years. The number of people selling LuLaRoe products has jumped from 38,277 in September to 80,000 today, according to data obtained by Business Insider.
By the end of April, the company is expecting to reach $1.8 billion in sales over the previous 12 months.
LuLaRoe has achieved this growth without selling any products in stores or even on a company website. Instead, the company sells clothing only through its 80,000 "independent retailers."
The retailers — many of whom are millennial moms — buy the clothing at wholesale prices and then sell them at marked-up prices to friends in their living rooms and in online forums.
The retailers can earn money not only from their direct sales, but also from the sales of a team of recruits. This strategy is called multilevel marketing (though Stidham says he prefers the term "multi-level management") and it's also used by companies like Mary Kay, Beachbody, and The Pampered Chef.
Some of LuLaRoe's top sellers claim that they make six-figure salaries annually.
One retailer, Tiffany Cook, posted a lengthy video online last year claiming that she earns about $34,000 a month with LuLaRoe. In the video, she mentions friends of hers who make monthly bonus checks of between $9,000 and $20,000 from the company. Another retailer told Business Insider last year that she sells 800 to 1,000 pieces of LuLaRoe clothing — or roughly $80,000 of clothes — out of her home each month.
Flashback to the unforgettable last picture we had with these qualified Retailers and staff! We love each and every one of you; and we thank everyone for striving to bless lives and strengthen families! Be sure to head on over to our Facebook page to see all the wonderful memories made on the first LuLaRoe Cruise of 2017! 🛳❤ #LuLaRoe #cruisinwithlularoe
A post shared by Women’s Clothing (@lularoe) on Feb 17, 2017 at 4:47pm PST
But most sellers aren't as successful.
More than 80% of LuLaRoe's representatives generated less than $5,000 in sales last month, including 10,834 who sold nothing, according to data reviewed by Business Insider. The average representative sold about $3,387 of LuLaRoe in the month.
Stidham said the company doesn't make any promises about how much money retailers can make selling its products. He said many retailers are content selling the clothes to friends and family for a little extra money, and that most don't want to manage teams of sellers, which could generate more money.
How to get a refund
LuLaRoe's new policies include the "Make Good" program — which applies to purchases between January 1, 2016 and today — and the "Happiness Policy," which applies to all future purchases.
The company also said it has sped up the process of refunding retailers who take back damaged items. In the past, retailers have complained that they couldn't get money back in a timely manner but Stidham said that should no longer be the case.
Retailers were informed of the changes on Tuesday.
Here's a breakdown of each policy.
The "Make Good" program:
Applies only to purchases of defective merchandise made between January 1, 2016 and April 24, 2017.
Customers can apply for a replacement, gift card, or cash refund by contacting the retailer who sold them the product. If that retailer refuses to help them, they can contact LuLaRoe through its "Make Good" website, and the company will connect them with another retailer who can process their claim.
Customers can also apply for a refund in the form of a personal check or a LuLaRoe gift card by making a claim directly to LuLaRoe on its "Make Good" website.
Claims must be made no later than July 31, 2017.
The "Happiness" policy
Applies to purchases made on or after April 25, 2017.
Within 30 days of purchase, customers can return products for any reason to the retailer they purchased from to receive a full refund, credit, or exchange.
Within 90 days of purchase, customers can return products for any reason to any retailer to receive a credit or exchange.
Customers can also apply for a refund in the form of a personal check or a LuLaRoe gift card by making a claim directly to LuLaRoe on its "Happiness Policy" website.
If a product has a manufacturing defect in materials or workmanship, customers may be entitled to a return any time under the company's new limited warranty. The limited warranty applies to items purchased after April 24, 2017.
Customers will not be charged for return shipping.