Avon’s be Coming Won’t Be Coming to Sears

Avon Products, Inc. and Sears, Roebuck and Co. jointly announced today that, due to a significant shift in Sears’ business strategy that will include de-emphasizing cosmetics, Avon will not proceed with the launch of its new retail brand, beComing, in 125 Sears stores this fall. Avon and Sears have reached a mutually satisfactory agreement, under which Sears will compensate Avon for Sears’ shift in strategy. Terms of the agreement were not disclosed; however, Avon said it is receiving a payment today and it anticipates no change in the outlook for its aggregate earnings for 2001-2002 as a result of the cancelled launch with Sears.

Avon previously announced plans to launch beComing in approximately 200 J.C. Penney and Sears stores in the U.S. in September, utilizing an innovative “store-within-a-store” concept, called Avon Centers, that will focus on women’s lifestyle needs. Avon’s launch in 75 Penney’s stores is proceeding as planned and it is exploring adding other retail partners to the beComing venture in the U.S. and internationally.

Sears very recently notified Avon that its re-evaluation of its business strategy includes plans to de-emphasize cosmetics. While Sears will continue to offer selected fragrances, bath and body products, gift sets and candles, this represents a significant strategic shift, since cosmetics was an area Sears intended to expand when the two companies agreed to join forces on the beComing launch a year ago.

“Avon has developed a very exciting new concept for cosmetics marketing,” commented Alan J. Lacy, chairman and chief executive officer of Sears. “However, Sears now sees a diminished role for cosmetics in the future positioning of its full-line stores. We fully understand that this is inconsistent with Avon’s desired position for its new brand and agree that it is no longer appropriate to move forward together on this initiative.”

Andrea Jung, Avon’s chief executive officer, said, “We are disappointed that Sears has made a change in its approach at this late stage and won’t be part of the beComing venture. At the same time, we appreciate the fact that they informed us of their intentions before any Avon Centers had been installed or any product had been shipped to Sears stores.

“We have always viewed retail as a long-term strategy for Avon,” Ms. Jung said. “We are as committed as ever to our retail initiative, which has the potential to reach millions of new consumers who do not shop through our primary direct selling channel. We are very excited about our partnership with J.C. Penney and we’re right on schedule for the launch of beComing in Penney stores in the weeks ahead.”

Ms. Jung also indicated that Avon’s second quarter and full year financial results are on track, as expected. “Our core direct selling business is the strongest it’s been in years. We’re continuing to see momentum building and we anticipate further acceleration of sales growth in the second half of the year, to a solid double-digit growth rate in local currencies. Sales are benefiting from robust beauty growth and the highly successful launch of our new Health and Well Being business in 15 countries this year,” she said.