Introduction Letter - your AvonRevised April 2006 Licensed Avon Beauty Centers LABC Application Kit...

Revised April 2006 Licensed Avon Beauty Centers

LABC Application Kit – 1. Let’s Review

Introduction Letter: Dear Interested Candidate: Thank you for your interest in one of Avon’s newest and most exciting career opportunities, Licensed Avon Beauty Centers (LABCs). Enclosed please find our Licensing Opportunity Kit, containing all of the information you need to assist you during your decision-making process. To make this process as easy as possible, we have divided the Licensing Opportunity Kit into the following four distinct sections:

1. Let’s Review 2. Let’s Qualify 3. Let’s Apply 4. Once Approved

Let’s Review contains valuable information that will help you to determine if opening a Beauty Center is right for you, and it includes the following documents:

• Q & A’s • Best Practices • Specialty Lease Agreement • Support Provided by Avon • Licensee Testimonials



Q & A: Let’s Talk: Avon Earning Opportunity Questions and Answers Question

Answer

1. Why are we offering

Representatives a chance to license beauty centers?

Our vision in the U.S. has always been to test our retail Beauty Center concept, gain critical learning, and extend this earning opportunity to qualified Representatives. Today, Avon U.S. is in a better position to implement licensing as an incremental earning opportunity for our Representatives.

2. Other Avon markets have

franchises for Representatives. Why not in the U.S.?

In the U.S., franchising is a very complex distribution strategy because of Federal and State laws. Due to this complexity, Avon has chosen licensing. *Licensing is available in all states, with the exception of Washington state

3. Will there be preferential treatment

for licensed Beauty Center Representatives? Will they receive product before other Representatives?

Representatives operating Licensed Beauty Centers may not display products licensed to Avon for Direct Sell Organization (DSO) - (i.e. Mattel, Disney, etc.) Representatives who license Beauty Centers will receive their shipments with their normal orders. They can request separate shipments and pay for that request just as any other Representative. They will have a unique credit extension for their opening order. Half must be paid within 60 days, with the balance in the next 60 days. Units ordered for the Beauty Center will be recorded on a separate account. Licensed Representatives will be guaranteed 50% earnings. Licensees may receive special offers, exclusive to Licensees.

4. What strategies are in place to

ensure that Licensed Beauty Centers and Avon.com shopping do not provide offers that Representatives cannot match?

Avon.com will continue to provide offers to Customers that may be different but of equal value from those in the brochure. We will provide Licensees of Licensed Beauty Centers special offers in order to allow higher profit margin at retail due to investment made by Licensees.

5. What retail locations will qualify?

Will there be opportunities for Division Sales Managers to expand Licensed Beauty Centers in other areas?

Representatives may submit retail location of choice to Avon Division Sales Managers. Avon will consider all requests and must approve of retail selection prior to opening of Licensed Beauty Center.



Q & A cont’d.: Question

Answer

6. Who is eligible for Licensed Beauty

Centers?

Representatives in good standing with Avon and who have been recommended to license a Beauty Center by their Division and District Managers and approved by their Regional Vice Presidents. They also must receive “credit card acceptance” through Paymentech, a Merchants’ Services Company. Due to the start-up costs, a credit review and an application form is required. It is also strongly suggested that Licensee complete Phase I and II of Beauty Advisor Program. This training will assist in enhancing product knowledge and selling skills to assist in promoting success in a competitive retail environment.

7. How does a Licensed Beauty

Center enhance the earnings opportunity of a Representative?

There are four ways a Representative can earn from a Licensed Beauty Center: 1) Retail sales from new Customers; 2) Brochure sales to Licensed Beauty Center Customers; 3) Recruiting; 4) Halo effect of retail visibility and consumer awareness on overall direct selling business.

8. Who selects the Licensed Beauty

Center locations and negotiates the leases with the retail developer?

Avon will determine which retail locations are suitable for our Licensed Beauty Center opportunity. Following approval of the retail location requested, the Representative should negotiate lease rate with local leasing agent. Avon is available to assist with inquiries regarding the process; however, it is suggested that Representative consult an attorney for legal advice, if necessary

9. Which products will be offered at

Licensed Beauty Centers?

It is suggested to display the top selling beauty products in each category, such as skincare, color, fragrance, bath, and personal care, as well as beauty-related Customer Order Builders (COBO’s).

10. Will Licensed Beauty Centers offer

non-Avon products?

No. Licensed trademarks, corporate symbols or the solicitation of competitive products will not be allowed at Licensed Beauty Centers.

11. How does the Licensed Beauty

Center Representative pay for her orders?

Based on a minimum three month lease, the opening order will have special credit arrangements in which half of the order amount is due in 60 days and the remaining balance must be paid within the next 60 days. Subsequent orders will be paid within 2 campaigns (approx. 30 days) on the regular Campaign cycle.

12. Will a Leadership licensee’s up-line

get credit for the Beauty Center’s sales?

Leadership licensee’s Beauty Center account will be entered into the system at the same generation in which their up-line account was established. Their up-line will get first generation earnings off the Beauty Center’s sales. Future plans will be determined once we assess the impact on our value chain.




Answer

13. How will Avon distinguish between

sales from the Licensed Beauty Center and the Representative Account sales?

Licensed Beauty Center Representatives will have two accounts. The “Representative Account” is the initial account established when the Representative was appointed. The LABC Account is used to processing LABC orders – the opening order will be established with a 120-day Payment Plan and the replenishment orders on the LABC Account will be established with a 30-day [2 campaigns] payment plan. Sales from both accounts count in the Representative’s home district, unless outside of the division where region approval applies.

14. Will Licensed Beauty Center

Representative receive products before other Representatives?

No. Licensed Beauty Center Representatives will process and receive their orders like all traditional Representatives.

15. What is the discount to Licensed

Beauty Center Representatives?

Licensed Beauty Center Representatives are guaranteed 50% discount on orders billed to the LABC Account. The exception to the 50% discount would be on all merchandise with a fixed commission rate.

16. What is the start-up cost for a

Representative to invest in a Licensed Beauty Center?

Start-up costs, including the first month’s rent, legal certificates, insurance, cash register, credit card processing equipment, telephone and miscellaneous supplies range from $3,000 to $10,000 depending on the lease rent. In addition, the suggested opening order for kiosks is $15,000 customer price and up to $30,000 customer price for inline stores. The special credit arrangement for of 60/120 days minimizes the up-front start-up costs, for leases three months or more.

17. Will Avon provide start-up

support?

Avon will provide on-counter signage, visual merchandising unit, testers, samples, sales aids, training manuals and video, and other start-up supplies. Avon will also provide a Customer Care Contact at each branch location.

18. What is a Representative’s ongoing

expense at the Licensed Beauty Center?

Monthly expenses, excluding rent, will be approximately $3,300, which can include the following: telephone, testers, brochures, credit card fees, samples, shopping bags and incentives. The two largest expenses each month will be the lease payments and staffing costs. Rent rates vary depending upon retail location and adjust upward during October through December. Advertising may be an additional cost.

19. What is the “License” Agreement?

The License Agreement outlines the terms and conditions in which Avon authorizes a Representative to run a Beauty Center in the common area of a retail environment. This agreement is between Avon and Licensee. Avon and the Licensee sign this agreement. There are no fees for licensing. This is subject to change.




Answer

20. What is “Lease” Agreement? The Lease Agreement outlines the terms and conditions in which the retail

developer authorizes the licensee to operate in their common area. The developer and the Licensee sign the agreement.

21. Will Avon open two Licensed

Beauty Centers in the same retail location?

Avon will establish only one Avon-operated or Licensed Beauty Center, per retail location.

22. Who is responsible for setting up

the Licensed Beauty Center?

The LABC Operator is responsible for setting up the space. Avon supports the set-up of the Licensed Beauty Center locations with the assistance of a “how to” video, training manual, and operations manual, and/or field assistance, where possible.

23. Can Licensed Beauty Center

Representatives sub-lease to someone else?

Licensed Beauty Centers cannot transfer interest to someone else without Avon’s prior, written approval. If the Licensed Beauty Center Representative cannot fulfill the terms and conditions of the lease, Avon is not obligated to assume the lease. However, Avon reserves the right to assume the lease, if appropriate.

24. Can Licensed Beauty Center

Representatives advertise in local newspapers to promote their business?

Licensed Beauty Center Representatives may advertise in the retail location or local publication using Avon created copy and layout. The Licensed Beauty Center Representative would cover the cost. It is important to remember that only Avon must approve all advertising, promotional materials and visuals that can be used at the Beauty Centers.

**25.How will sales tax be collected

for the Licensed Beauty Centers?

Avon will not be able to legally deduct sales tax from the Licensed Beauty Center Representative’s invoice. The Licensee will need to apply for their own “Certificate of Authority” and provide a copy to Avon prior to opening. This application cost is minimal and could take up to three weeks to acquire.

26. What is the single, most important

factor for the success of a Licensed Beauty Center?

The Licensed Beauty Center Staff! A well-trained, knowledgeable staff will build the business and develop a loyal Customer-base. A beauty business is made up of basic, transactional and holiday business. It is critical that the Licensee and staff have experience in retail. Licensed Beauty Center Representatives must know the retail selling calendar and schedule accordingly. The retail business is about customer relationships, long hours and a great staff.

27. How profitable is a Licensed

Beauty Center?

As mentioned above, the staff is a key factor for the success of a Licensed Beauty Center. We also suggest researching the selected retail location (i.e., traffic pattern, $/sq. ft., etc.). You may want to seek a professional accountant’s financial advice, as well as research small business resources on the internet, such as the Department of Labor Relations website, http://www.labor.state.ny.us./html/entrepre/guide.htm




Answer

28. Will Licensees be part of the same

Award / Recognition Program as traditional Representatives?

Yes. LABC accounts and Representative “home” accounts are combined for all award/recognition programs.

29. Who can I contact for more

information about Licensed Beauty Centers?

Representatives should contact their District or Division Sales Managers if they are interested in applying for a Licensed Beauty Center. You may also visit the LABC webpage at YourAVON.com.



Best Practices:

1. Location/Location/Location- The right choice is essential. • Food court • Near similar carts or stores:

Bath & Body Victoria’s Secret Major Department Store

• At a main intersection in the mall • Near a main entrance • To determine best location visit mall numerous times • Completely read the “Real Estate” manual in the “Opportunity Kit”

2. Have significant finances up front to cover 3-6 months of expenses

• Develop a business plan to determine approximate amount required • Consider enough reserve to cover rent, inventory and payroll

3. Hire reliable and trustworthy employees

• Pay a competitive wage: Check with going rate at cosmetic counters Usually one – two dollars over minimum wage Train all employees (have them attend a phase 2 Beauty Advisor class)

• Consider commissions and/or provide incentives

5% - 10% over a predetermined sales goal incentive on a specific product sales volume Establish daily and/or weekly sales goals

• Be actively involved in the Leadership strategy:

Display recruiting flyers provided Follow-up on customer lists periodically to inquire about interest in selling Ask District Sales Manager for recruiting flyers Purchase Leadership kit

4. Provide superior customer service

• Know product line • Become a Beauty Advisor and attend phase II • Maintain and review a current copy of the “Product Reference” guide, found on yourAvon.com • Maintain a professional customer list to record name, address, phone number and e-mail address • Enforce a dress code for all employees

Suggest white blouse and dark pants • Greet customers with a smile and as soon as they approach your location • Honor the Guarantee and display your return policy



Best Practices cont’d.: 5. Advertise

• Distribute flyers: Put sales flyers in every order Distribute sale flyers in food court if permissible

• Yellow pages under cosmetic sales

• “Cross Promotional” advertising Develop a flyer to have distributed by another cart owner

promoting your product and do the same for them • Discounts for mall employees • Join community organizations i.e. Chamber of Commerce

6. Marketing

• Take advantage of “Best Pricing” products • Shop from three brochures

Take advantage of specials in the brochure on popular products • Offer bundles and/or baskets:

-Be aware of product offers that competitors (Estee, Lancome', Bath & Body ) are featuring

-Maintain full line of skin care, color and daily needs -Order regularly and often as needed

• Display products in an organized and neat manner and rearrange products frequently 7. Stay on top of your expenses to Avon so as not to disrupt shipping of product 8. Be Enthusiastic, Positive, and Ambitious - - - - - - HAVE FUN!



Specialty Lease Agreement:

Definition of Fees Fixed rent may include the following, but some developers will add these costs to your monthly rent. Ask what is included in your fixed rent fees before you sign.

• Fixed Rent: Monthly / weekly rate based on time of year, square footage of license area and term of the agreement.

• Marketing Fees: Percentage of fixed fee, which goes directly into marketing the LABC • Common Area Maintenance (CAM) = flat fee per unit or % of rent • Real Estate Tax: Flat fee or % of rent • Visual Merchandising (VM) design fee $100 - $300 (Not necessary because Avon provides a professionally-

designed merchandising package to all Licensees) • Signage Fee: For sign on cart, normally: $50 - $150 • Advertising Fee: This is a separate amount from marketing fee and is usually used for holiday advertising.

The advertising fee could already be in the fixed rent, but please verify before you sign a license agreement.

Understanding Occupancy Cost There are five terms you will need to understand in order to negotiate the best deal for your cart business.

• Fixed rent fee Fixed monthly amount to be paid as base rent.

• Percentage Rent The rate at which additional rent is charged by the Landlord based on a predetermined level of sales.

• Breakpoint Level of sales at which additional rent is charged.

• Occupancy Cost Total rental cost (including, fixed rent, maintenance, taxes, etc., charged by the landlord)

as a Percentage of Sales. It is also a tool to assist you in Measuring / Forecasting for profitability in that mall location.

Calculating Breakpoint Natural Breakpoint has a direct relationship between the fixed rent and the percentage rent. Let’s assume the fixed rent is $1,000 per month and the percentage rent is 15%. EXAMPLE: Fixed rent divided by Percentage Rent = Breakpoint $1,000 ÷ 15% $6,666.67 Therefore, each month that sales exceed the breakpoint, ($6,667.67 in this example) additional rent will be charged on that portion of sales in excess of $6,666.67. Unnatural breakpoint is a predetermined sales volume rather than a calculated sales volume as shown above. A typical example would be if the landlord chose $5,000 per month for the breakpoint.



Specialty Lease Agreement cont’d.:

Calculating Percentage Rent and Total Rent Example: Actual sales for the month $7,895.00 Breakpoint - 6,666.67 Amount subject to 15% additional $1,228.33

Fixed rent for the month is $1,000.00 Overage rent ($1228.33 x 15%) 184.25 Total rent for the month $1,184.25

Calculating Occupancy Cost

It is important to understand the occupancy cost in order to understand how it impacts your business. Occupancy cost equals the rent paid divided by the actual sales.

Example: Rent Paid divided by Sales = Occupancy Cost $1184.25 ÷ $7895.00 = 15%

Most Specialty Leasing programs operate on a 15% occupancy cost. Using 15% as a yardstick, you can then judge approximately how much rent you should be charged on an annual basis, based on projected sales.

Example: Assume your annual sales are estimated at $85,000. Then your annual minimum rent cost would be

approximately $12,750 (15% of sales).

Business License It will be necessary to purchase a business license locally in order to operate a specialty retail beauty center in a retail environment.

Insurance

Kiosk retailers must provide developer with a certificate of insurance for comprehensive general liability, bodily injury and property damage.

Resale Number

A sales tax number must be acquired for each unit location.

Site Selection • Selecting Location Within the Retail Environment

Choose entrance with the heaviest traffic flow. In malls, place yourself near middle-end department stores (Macy’s, Dillard’s, JCPenney, Sears, Hechts) or

specialty stores (Gap, Limited, Disney) Select main isle positioning – no side corridors. Observe areas where the foot traffic is high. Avoid visual obstructions, such as planters and ATM’s. Avoid areas with poor lighting. In malls, don’t position yourself as the first cart from the department store, if it’s too near the entrance, the

traffic flow will be too fast. This traffic flow is directed into the department store and not as subject to browsing.

Position of 2nd or 3rd cart from store entrance is good.



Specialty Lease Agreement cont’d.:

Site Selection cont’d. • Mall Demographic Considerations

Determine if there is a specialty leasing coordinator in the mall. This person can provide you with a demographic study, traffic flow information, etc. to assist you in your decision-making process.

What are the sales per square foot for the mall? Where is the nearest competitive shopping area? Who are the major anchors? What is the annual / monthly retail productivity for carts / kiosks? Inquire as to the number of carts and their merchandise mix. Is there a storage area available? What is the proximity to the cart? What is the added cost for storage?

• Types of Specialty Retail Units

Mall Carts/Kiosks: Approximate size 5’x5’, 10’x10’, 14’x14’ Inline Stores: Approximate size 10’x10’ and up

Inline stores are actual stores within a mall structure. Based on square footage, they have higher rents and greater overall startup costs.



Support Provided by Avon: Support Provided to Licensee by Avon Products, Inc.

Marketing 50% Discount on suggested Product Assortment, Beauty Plus • Products sold at suggested premium price (purchase price to Licensee varies by Campaign)

25% Discount on Beauty Fixed Commission Items 120-Day Payment Plan for Opening Order (50% due in 60 days) • Replenishment order payment plan is every 2 campaigns (approx. 30 days)

Allocation of Samples for key brands (no charge with opening order) Testers for key brands (no charge with opening order) Visual Merchandising Collateral • Generic Signage for on-counter display • On-counter Tester Units:

1 – Nail Unit 1 – Lip Unit 1 – Eyeshadow Unit 1 – Foundation Unit 1 – Mirror 3 – 4 X 6 Lucite Frames (to hold signs we provide) 3 – 6 X 4 Lucite Frames (to hold signs we provide)\ 2 – 8 ½ X 11 Frames (to hold signs we provide) 2 – Lucite Cups – small (to hold lipliner testers) 2 – Lucite Cups – large (to hold lipliner testers) 2 – Acrylic Bins 1 – Tester Labels (roll of 50) (Do not need to use on testers with units)

• Collateral Prepack: 1pk Mascara Wands 1pk Foam Pads 1pk Cotton Squares 100 Plastic Dust Covers

Set-up and Training

Operations Manual Training Manual and Video

Field Support

Visits by Field Management IMPORTANT: The above package is based on a minimum 3 month lease and is subject to change for any lease

less than 3 months.

LABC Tester Display Units

Lip Unit

Dimensions: 11" x 15" x 9"

Unit displays lipsticks for easyaccess and visibility; individualslots keep tubes upright. Group according to color families, then subdivide intosheers, mattes and shimmers.

Nail Unit


Gently tiered case organizesnail enamels so that colors are clearly visible and bottlesare easy to select for demonstration or testing.

Eyeshadow/Blush UnitDimensions: 7" x 11" x 10"

Organize eyeshadows andblushes by color families for quick identification. Case keeps products securely in place, yet easy to access.

Acrylic Bin


Use as a hold-all bin for staples, such as cotton balls or cleansers, or as extra storage space to organize your beauty center.

LABC Tester Display Units

Mirror


A must-have for Customers to view the results of theirmakeovers, or to test productson themselves. Two-sided andportable. One side magnifies.

Pencil CupsDimensions: A: 31⁄2" x 33⁄4"

B: 4" x 31⁄4"

Perfect for holding lip gloss,eye liners or cotton swabs.Offers quick and easy accessto contents.

Counter SignHolderDimensions: 81⁄2" x 11"

Prominently displays larger promotional materials; simply slip in materials through the side slot.

Counter SignHolderDimensions: 4" x 6"

Displays smaller promotionalmaterials; simply slip in materials through the side slot.

Avon Products, Inc. 78153-9



Licensee Testimonials: “When Avon offered the opportunity of Licensed Avon Beauty Centers in Malls back in 2001, I jumped into it right away. I believed in this strategy since its beginnings. It is not a get rich-quick project. It takes an incredible amount of work, but it is worth it. I started with a kiosk at Southland Mall (formerly Cutler Ridge). It has now become an in-line store and it is my #2 in sales. In the second year, I opened at Las Americas and Westland. Then, came Dadeland (which is my #1 in sales) and International. I have had full support from my husband Roberto and children Mirtala, Veronica, Magdaelena, Carmina and Rafael. Roberto and Mirtala quit their jobs to join efforts full time in this project. It has been a blessing because I could not have done it by myself. Even my grownup grandchildren help at times, and they love to talk to customers about the different Avon products. LABCs have also helped to grow my home delivery customers as people take brochures and order from home. It also helps other representatives when in need of products immediately or when they want to look at new products. LABCs also give Avon great visibility in the Malls and help to promote the Avon image of excellent quality at competitive prices. My family and I love and enjoy Avon. More than a business, to us it is a way of life.”

Carmenmaria Angulo Dadeland Mall, Southland Mall,

Mall of the Americas Miami, FL

“I still can honestly say, I LOVE WHAT I DO. I have been very blessed with my business. About two years ago, I would say was the best financially it has done. In one year, I completed a $20,000 kitchen and first floor remodeling job. Eye surgery… unexpected out of pocket was $3500. I paid off my 1999 Lexus as well as my son’s 2000 Grand Prix and went to Italy on vacation. I paid cash for all of these. One area for which I would say Avon does not promote the benefits enough is our President’s points plans. I have done unbelievable stuff with this. First off, I received a chunk for a huge increase when I jumped in status and increased from Rose Circle to President’s Council. This is just some of what I have done. All of the new kitchen appliances for the remodeling job were with this. My son joined me on the Alaska cruise with this. My friend joined me on the San Francisco trip. Large screen TV, 2 smaller TVs, video camera, lap top computer, and drum roll please… last year I cashed in $21,000 in points for half of the down payment on my condotel in Lake Geneva. In 2006, many of these points will be cashed in for my portion of payment for college for my children. I have enjoyed many trips and recognition, as well as the Prestige’s Award for being #1 in the North in sales increase the year I took over my LABC. Plus, a $1,000 bonus. Leadership building has happened also. I am an advanced unit leader because of the leads I have given my downline from all the people I can talk about the earning opportunity to.”

Shirley Ekblad Yorktown Shopping Center

Lombard, IL

Introduction Letter - your AvonRevised April 2006 Licensed Avon Beauty Centers LABC Application Kit...

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