Unable to compete with discount chains and drugstores, department store giant

Sears

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said Tuesday it is exiting the cosmetics business.

The Hoffman Estates, Ill.-based company also said it is pulling out of a deal with

Avon

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that would have been the cosmetic company's first foray into retail shops. Sears will take an $80 million charge to dump its cosmetics business, the company said, of which $30 million is reportedly a settlement payment to Avon.

Sears shares were down 30 cents at $40.90, while Avon lost 85 cents to trade at $44.40.

The decision is part of a larger effort to shed unproductive business lines, as traditional department store chains like Sears have lost market share in recent years to popular discounters such as

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and

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. "As work on improving the performance of full-line stores progresses, it has become clear that a broad cosmetics business no longer fits with our financial and strategic objectives for Sears full-line stores," said Alan Lacy, the company's chairman and chief executive, in a statement.

The decision is not likely to affect the earnings outlook for Sears, the country's number four retailer. Cosmetics generates annual sales of less than $50 million, or less than 1% of the company's total sales, according to data provided by Wayne Hood, an analyst at

Prudential Securities

.

Still, Hood praised the decision, noting that cosmetics has been an unprofitable line of business for the company. He cites the following data: cosmetics generate only $29 to $30 of sales per square foot, considerably lower than the $400-per-square-foot company average.

"Exiting cosmetics is consistent with management's focus on doing fewer things better, thus improving the productivity of its assets and generating better returns," Hood says. (Hood has a buy rating on Sears and his firm does not have a banking relationship with the company).