Ladies hold onto your buttery soft and poorly made leggings because there is some delicious LuLaRoe news. Former LLR executive Patrick Winget filed a declaration to a lawsuit in support of a Plaintiff Providence Industries. In the declaration, Patrick reveals behind the scenes business dealings, terrible behavior by founder Mark Stidham, and depicts a company on the brink of collapse.
According to the declaration, Patrick says he started with LLR in 2013. When Patrick was hired by the company, he says he was their fifth or sixth full-time employee.
Over Patrick’s tenure with LLR, he said the company grew at lightning speed. In 2013, Patrick estimated the company generated about $2 million a year with about 100 retailers hawking the modest garb.
Fast Forward to 2017, Patrick says the company earned more than $1 billion in sales and employed more than 80,000 retailers.
During his time with LLR, Patrick says that owner Mark Stidham made questionable financial decisions. Patrick also says Mark had no problem flaunting his wealth.
Patrick alleges that Mark Stidham moved out of the state of California to avoid paying taxes. According to conversations between the two men, Stidham moved to Wyoming to save more than $50 million in taxes to California.
In addition to Mark moving his family to a large ranch in Wyoming, Mark flew between the two states in a private jet. Patrick said he flew on the jet at least 15 times with Mark over the course of several years.
By 2017, Patrick said the company was struggling financially. He said retailers were having trouble selling products. There were numerous complaints about clothing quality by retailers. Oversaturation of retailers in the market impacted retail sales. The company also had a really bad buyback program for retailers for defective items.
However, the biggest reason Patrick says the business fell apart was due to the way LLR decided to pay out bonuses to retailers. After being accused of running a pyramid scheme through multiple lawsuits, LLR changed the way retailers earned bonuses.
Originally retailers earned bonuses based on what their downline sellers ordered wholesale. Because the scheme had all the smells of a pyramid scheme, the company was forced to change the bonus structure.
Patrick says with little to no notice, LLR decided to stop all bonuses to retailers based on wholesale purchases. Instead, retailers only received bonuses based on what they sold to customers.
By the time all of this went down, there were more than 80,000 retailers and oversaturation made it impossible for retailers to sell their products to consumers. When retailers stopped earning bonuses, Patrick said they started abandoning ship.
Patrick estimates that more than 50% of the retailers left the organization within a year of the bonus change.
During this same time, Mark Stidham also decided to introduce a 100% buyback guarantee to retailers. Patrick told Mark the buyback program would be a financial disaster, but he says that Mark did not listen to his warnings.
What happened next was exactly what Patrick expected to happen. As more than 50% of retailers exited the company, they returned merchandise to LLR in droves. Patrick said that LLR could not keep up with the financial ramifications of the return policy.
Instead of being concerned about the financial collapse of the company, Patrick says Mark didn’t seem to care about the company bleeding money. According to Patrick, Mark started spending obscene amounts of money buying expensive cars. He said over the course of a year Mark purchased millions of dollars in exotic sports cars.
While retailers waited for their returns to be processed, Mark and DeAnne took expensive trips all over the world. Patrick says the couple flaunted their luxurious lifestyle all over social media.
While Mark and DeAnn enjoyed the high life, LLR was unable to pay suppliers. Despite the fact that retailers were not buying inventory from the company, Mark continued to order massive amounts of clothing from various suppliers.
As the returns continued to pile in, LLR had old inventory that it could not move and new inventory that no one wanted to buy. LLR had a serious cashflow problem.
By mid-2018 Patrick said the company’s profits had dropped by more than 50% from the previous year. He estimated that the company’s annual income was down from $3 billion in annual sales to $1.2 billion in sales.
With the company bleeding money, Patrick said Mark’s son decided the company needed to use a cheaper supplier for their clothing. Not happy with the choice of supplier, Patrick protested the change to Mark.
Patrick insists the quality of the new supplier was subpar and would create even more issues for the company. Additionally, he grew concerned that the new supplier may not be on the up and up with legal and social compliance issues related to the factories in their countries.
None of that mattered to Mark. He and his son decided to move forward with the new supplier. Within only a few short months of the change, Patrick said he had a falling out with Mark.
Patrick says that Mark called him out of the blue and accused him of approving the destruction of millions of dollars in inventory. Mark called Patrick his enemy. Patrick says he reminded Mark that Mark authorized the destruction of the property. However, Mark refused to believe him.
Shortly after the blowout, Patrick left LLR.
If true, Patrick’s declaration confirms what critics have been saying for years about LLR. Critics have been vocal that Mark and Deanne were funding their luxurious lifestyle at the expense of their thousands of retailers. While thousands of women waited for their refunds, Mark and Deanne stocked up on expensive cars and took expensive trips.
If the company is in the financial position that Patrick alleges, the company will certainly collapse in the imminent future.
As the lawsuit plays out in court, we will keep you updated on the outcome.
If you want to read Patrick’s full declaration, you can read the document here.
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