Unable to compete with discount chains and drugstores, department store giant
said Tuesday it is exiting the cosmetics business.
The Hoffman Estates, Ill.-based company also said it is pulling out of a deal with
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
. "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
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).