Avon Won't Be Calling in Sears

Sears Roebuck (Hoffman Estates, Ill.) announced it is dropping out of the cosmetics business. The decision to stop selling skin care products and color cosmetics, which consist mostly of its Circle of Beauty brand, is part of an ongoing review of operations at its 860 department stores. The retailer has sold cosmetics since 1995. Sears will continue to carry selected fragrances like Elizabeth Taylor's White Diamonds and Lancome's Tresor, and it also will sell bath and body products under its Time Out brand, a company spokeswoman said.

As a result of the decision, the nation's Number 4 retailer will not launch a new line of cosmetics from Avon Products (New York), after all. The plan had called for Avon's beauty products to be rolled out in 125 Sears stores (as well as 75 JC Penney stores) under a new beComing label, marking the first retailing venture in Avon's 115-year history. Avon has traditionally marketed its products directly to the public through sales representatives popularly known as “Avon ladies.” The companies had first announced the venture in September. BeComing products — makeup, skin care, fragrance, maternity and baby products, nutritional supplements, and jewelry — were to be sold in 400- to 600-square-foot Avon shops within the retailers'stores.

Though unconfirmed by either party, Sears is reportedly paying 40 percent of a $80 million pre-tax charge, or about $30 million, to Avon as a settlement for the cancellation.

Avon said it would proceed as planned with the Penney stores. A spokeswoman for JCPenney said the company was committed to its agreement with Avon, and if the products did well, there would be an opportunity to expand to additional stores.

Avon said it anticipates no change to its outlook for 2001-2002 earnings as a result of Sears'withdrawal. It “will mean getting off to a little bit of a slower start with beComing,” said Avon ceo Andrea Jung , “but it does not diminish management's enthusiasm for the retail strategy. Because of the prices, target consumer and space requirements for beComing, Avon said it will continue to look for mall-based retail partners. Department stores generally continue to see cosmetics as an integral and profitable part of their mix, Jung said.

Avon had projected sales growth, including the negative impact of foreign exchange, in the mid-single digits on a percentage basis. Those targets are achievable without any contribution from retail, Jung said on Tuesday. Although the foray into retail is strategically positive, and could improve Avon's image, analysts said, the beComing launch was not expected to be a significant sales growth driver in its early stages. Avon had forecast $10 million to $15 million in sales in 2001, and $200 million to $300 million in sales by 2005. Analysts said that once Avon replaces Sears as a retail partner, it could quickly get back on track to achieve its retail goals.