Drill Bits, Paint Thinner, Eyeliner

Only days after he was named president of apparel at Sears, Roebuck & Co. in February, 1993, Robert L. Mettler was having coffee at New York's posh Helmsley Park Lane Hotel with Pierre Rogers, president of cosmetics maker Lancome USA. Rogers, a Montreal native, was speaking quickly in his heavy French accent and drawing numbers on a paper napkin. His proposal: that Sears create its own private-label line of cosmetics through a joint venture headed by Rogers, who would resign his lucrative Lancome post. Mettler, who was already planning to discuss the cosmetics business with his new boss, Arthur C. Martinez, then CEO of the Merchandise Group, was intrigued. He didn't commit himself, but put the napkin in his pocket.

Thus was born one of the more unusual retailing partnerships of the 1990s. Sears linked up with outsiders decades ago to build some of its biggest brands, such as Kenmore, but has never before offered up equity in a Sears brand. The joint venture, signed in April last year, was considered so secret that Sears executives referred to Rogers only by the code name Vincent, a reference to the shaggy creature in the now canceled TV show, Beauty and the Beast. After a frantic 17 months of creating, manufacturing, and packaging more than 600 products, Sears unveiled its Circle of Beauty line of makeup, skin-care products, and fragrances in mid-September.

The key question: Will American women, who spend $16 billion a year on cosmetics and fragrance, buy personal products from a company best known for Weatherbeater paint, Craftsman tools, and DieHard batteries? "It's a bit of a stretch," says retail consultant Alan Millstein. There's another obstacle: The cosmetics and fragrance business relies heavily on image advertising, and Sears won't be advertising nationally at first because the cosmetics will be sold in only 150 of its 800 stores.

SURROGATE SHOPPERS. Sears, the nation's No.2 retailer, has a lot riding on the outcome. Cosmetics are the next critical step in its $40 million-a-year "Softer Side of Sears" marketing campaign, launched in the fall of 1993 to woo middle-income women. Martinez ordered up the campaign soon after joining Sears in 1992, when he discovered that its best customers for its big-selling Craftsman tools and Kenmore appliances weren't men. They were women, aged 25 to 50, who do almost all the family shopping, from buying men's underwear to picking out a new washer.

The bad news: When it came to their own needs, women went elsewhere. Sears didn't carry much brand-name apparel and hadn't built any big in-house brands as it had with tools and paint. The campaign has helped, though those soft lines still represent only about a third of sales because hardware and tool sales have been growing, too. Sears' retailing profits increased 18%, to $890 million, in 1994. Sales in stores open a year or more jumped 8.3% and are up an additional 4.1% so far this year. But Martinez thinks he can do better.

Sears has spent tens of millions of dollars funding the 50-50 joint venture with Rogers and two associates. It's betting that a market exists somewhere between drugstore blister packs of blush and eye shadow and the high-priced department-store counter. Catherine Wills, Maybelline Inc.'s executive vice-president for marketing, says she's keeping an eye on Circle of Beauty. But she believes the convenience of buying makeup at Wal-Mart Stores Inc. or Walgreen Co. will keep customers loyal.

Sears says its focus-group research found that many chain-store shoppers are intimidated by department stores, where the goods are kept behind glass. But they still want help choosing the right product and color--something most drugstores and discounters don't offer. Sears lets shoppers test Circle of Beauty products themselves while salespeople wait to answer questions. Once they make a choice, shoppers help themselves to the merchandise and carry it to the cash register. "When people can play with products, there's a greater tendency to buy one," says Allan Mottus, publisher of the Informationist, a cosmetics-industry newsletter.

EN ESPANOL. Circle of Beauty's creators took bits of inspiration from current hits. There are botanical ingredients like the Body Shop International's. Skin-care products and makeup are fragrance-free and tested by dermatologists like Clinique's. No animal testing, of course. The packaging, which doesn't mention Sears, is an elegant dark green, not unlike Chanel Inc.'s simple trademark black. But Circle of Beauty costs a lot less. A lipstick runs $8.50, compared with $20 for Chanel. And Sears, with a growing number of black and Hispanic customers, offers twice as many shades of lipstick and foundation as most rivals. Brochures are in Spanish and English.

Advertising won't be expansive at first. Circle of Beauty will hit 100 new stores annually, but it will be years before it's sold widely enough to justify national ads. Sears thinks it can afford to move slowly. "We know building a brand is a long-term proposition," says Martinez, who was named Sears chairman in August. "This is not a quick three-month commitment and pull the plug."

If Sears manages to turn Circle of Beauty into a strong contender, the potential is huge. As apparel sales sag, cosmetics and fragrances have come to represent about 10% of department-store sales, up from 6% a decade ago. They carry 40% gross margins, and Sears' profits on Circle of Beauty should be even higher since it's private label.

Sears has done everything it can to make the new line a success. It spent heavily on consumer research, testing everything from names to products to packaging. Beaute, the French word for beauty, for example, was discarded as a possible name because women couldn't pronounce it. Circle of Beauty is certainly easier to say. The question is, will it ever roll as trippingly off the tongue as Kenmore and Craftsman?

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