LuLaRoe, the ridiculously successful fashion company known for its bright and comfortable leggings and genius marketing plan, is in trouble.
The company’s innovative direct sales model (which relies largely on Facebook and other Internet communities) has won many loyal female supporters. Its advantage is that it allows them the unique opportunity to build their own pop-up shops and make a commission as consultants, but the business model has also had its complications.
The company, whose headquarters is in California, was slammed with a lawsuit on Feb. 17 in U.S. District Court in Western Pennsylvania, alleging that it has been illegally collecting sales tax in states that don’t have it.
Through the brand’s online point-of-sale payment platform, known as “Audrey,” customers are charged based on the sales tax imposed in the consultant’s location — not in their own, where the product is actually being delivered. Some customers in areas that do not levy the tax may have been overcharged by up to 10.25% when buying from consultants in areas that do impose sales tax, the lawsuit alleges.
The plaintiff — Rachael Webster of Allegheny County, Penn. — was overcharged $35.16 in “sales tax” for 12 purchases she made in 2016, since Pennsylvania does not charge sales tax on clothing. In the suit, LuLaRoe’s practices are described as “unlawful, unjust, deceptive and fraudulent.”
The suit also states that LuLaRoe is “aware of these tax collection and assessment procedures and knows how to assess sales tax on its clothing sales.” The company notified consultants that sales tax would be assessed against the “ship-to address” of customers in 2015.
The company chalked up the error to a “technology system failure” and released the following statement to Yahoo Style:
“We are fully aware of this issue and have invested significant resources to address it. Our former payments vendor had a technology systems failure that misidentified the accurate location of certain customers. When affected customers have contacted us to identify their proper location, we have immediately issued them a refund for sales tax overcharges. In addition to contracting a new payments vendor, we are proactively working to ensure that all affected customers are refunded for sales tax overcharges. LuLaRoe is committed to our thousands of passionate Independent Retailers and consumers who love and support our quality brand.”
Meanwhile, a number of customers have been complaining about the poor quality of the company’s leggings.
Many women found that holes were appearing in their leggings after they had worn them only once or twice. The issue was so widespread that a private Facebook group has been created, LuLaRoe Defective/Ripped/Torn Leggings And Clothes, which now has almost 4,000 members.
Watch Out for Hilarious, Slightly Inappropriate LuLaRoe Legging Fails
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