LuLaRoe's family tree of multilevel marketers

For LuLaRoe founder DeAnne Stidham, business is very much a family affair. After all, three companies founded by her relatives compete against Stidham's LuLaRoe, a multilevel marketer (MLM) best known for its line of colorful leggings.

In the months after LuLaRoe was incorporated in January 2013, Dot Dot Smile was founded by Stidham's daughter Nicole Thompson; Stidham's twin sister Dianne Ingram launched Honey & Lace; and her niece Buffy Bandley started Agnes & Dora. Dot Dot Smile specializes in children's clothes, while Honey & Lace and Agnes & Dora both offer leggings and other fashions for women. 

Stidham started LuLaRoe, which now reportedly has more than $1 billion in sales, at her kitchen table a year before it was originally incorporated. Some of her relatives also didn't need to travel far to get launched. Thompson started Dot Dot Smile in her family room, while Bandley founded Agnes & Dora in her garage. All the MLMs say they were surprised by the overwhelming demand for their products.

MLM participants can earn money by both selling products and by attracting new members to join their sales teams. It's a business model that has been around for decades and includes multibillion-dollar firms such as Amway, Herbalife (HLF) and Avon (AVP). LuLaRoe isn't included in Direct Selling News' Global 100 ratings of the top MLM companies, which requires outside verification of their sales data. Companies not on the list either declined to cooperate with the trade publication or failed to respond to requests to do so.

"Like many industries, the MLM industry is fairly incestual," said William Keep, dean of the College of New Jersey's School of Business who tracks the industry. "Family members often get involved in the same MLM, and there are numerous examples of founders or high-level distributors in one MLM going on to create another. That family members would own multiple MLMs is not surprising at all."

LuLaRoe sales representatives, who aren't employees, had sold a line of children's clothing under the brand name Dot Dot Smile until last summer. Dot Dot Smile, which like LuLaRoe is based in Corona, California, officially registered as a limited liability company in May 2016. LuLaRoe now sells children's clothing under its own name.

"Ultimately, the decision was made that our business was best served by Independent Fashion Retailers selling LuLaRoe products exclusively," according to LuLaRoe.

Dot Dot Smile has listed its entire catalog as "sold out" for at least the past several weeks. The company, though, is operational and even is advertising for workers at its warehouse.  According to several videos posted on YouTube by Dot Dot Smile consultants in the past two months, Dot Dot Smile is actively looking for more consultants and currently claims to have a waiting list for people to join because demand for its fashions far exceeded its supplies.

"The big thing we are waiting for is inventory," said YouTube poster Chelsey Bennett. "They were expecting inventory for maybe 150 merchandisers, not thousands. We are in the thousands now. They were not prepared"

Poster Michelle Schaeffer assured her listeners that the initial investment in Dot Dot Smile was about $800, "definitely a lot more doable" than LuLaRoe, which requires new representatives to spend at least $5,000 in their initial order. That figure is considered high for the MLM industry.

Neither Bennett nor Schaeffer responded to emails seeking comment for this story.

Some former LuLaRoe consultants are now selling Dot Dot Smile's, Honey & Lace's and Agnes & Dora's lines, saying they're being treated better by the companies. Experts, though, have long argued that the vast majority of distributors in MLMs lose money.

"They feel they're 'different' -- and I guess that remains to be seen," said Christina Hinks, a former LuLaRoe consultant and a blogger who's often critical of the company. "They're all so new and launched within months of each other, which I find to be suspect."

Agnes & Dora got its name from a book Bandley's late grandmother Maurine Startup wrote in the 1960s called "The Secret Power of Femininity," which argues that women have two sides to their personality: the confident "Agnes" and the playful fun-loving "Dora." Startup was also the mother of DeAnnne Stidham and Dianne Ingram. Bandley's mother is Stidham's and Ingram's sister Cheryl Worsley, according to genealogy records.

LuLaRoe has no relationship with any other apparel companies, and it declined to comment on whether it considers the other MLMs to be competitors. Dot Dot Smile, Honey & Lace and Agnes & Dora didn't return calls seeking comment. 

As for relations with the other MLMs, LuLaRoe in a statement said, "DeAnne and her husband, Mark Stidham (LuLaRoe's CEO), are part of an extended family with a long tradition of entrepreneurship."

Current and former LuLaRoe sales representatives have accused the company of overstating the potential rewards and understating the costs of selling its line. Two lawsuits have been filed accusing LuLaRoe of knowingly selling defective merchandise, while another legal challenge accuses the multilevel marketer of charging sales tax in states that don't collect it on clothing sales. 

LuLaRoe also is accused of stealing a lion design from a Hungarian artist.  It has denied wrongdoing in all the legal cases. 

LuLaRoe has been trying to burnish its public image in recent weeks. Last month, it announced it would make it easier for customers to get refunds for defective merchandise. The company also began addressing the backlog of complaints lodged with the Better Business Bureau that the company had ignored for months. BBB, however, continues to give LuLaRoe a failing grade of "F" because it hasn't responded to all the issues.

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    Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.