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AOL Shuns Discounter, Signs $12 Million Pact with FragranceCounter

The Fragrance Counter Inc., a subsidiary of Allou Health & Beauty Care Inc., announced an exclusive multi-year, $12 million plus revenue-sharing marketing alliance with America Online. And the competition isn't happy.

Although they didn't say the deal stinks, you could certainly catch a whiff of it between the lines of a statement put out by low price competitor FragranceNet, which said it "appears" to have been bumped from AOL's Marketplace.

"If the AOL press release is accurate, then America Online members will pay higher prices for fragrances in the AOL Marketplace," said Jason Apfel, vice president of FragranceNet, which said it discounts all of its products, some as high as 70% off retail.

The AOL statement said: "The Fragrance Counter will offer, on an exclusive basis, a distinguished variety of prestige designer fragrances and upscale cosmetics through AOL."

The Fragrance Counter has been on the AOL service since 1995, but this new agreement is designed to give its offerings more prominent placement, the company said.

Under the agreement, The Fragrance Counter and The Cosmetics Counter sites will be the exclusive boutique retailers of fragrance and cosmetics products in AOL's Women's Channel, Shopping Channel, and Sports Channel, as well as AOL's Electra and Love@AOL areas. The Fragrance Counter will also be accessible through Entertainment Asylum and in certain special holiday areas, and will be the exclusive boutique retailer on AOL's Web site.

Said Myer Berlow, AOL's senior vice president for interactive marketing: "Our agreement with The Fragrance Counter is another example of how we continue to provide the great products, values and convenience our members have come to rely on."

"We applaud Fragrance Counter getting more visibility for Internet shopping, even if they charge full retail prices," said Apfel at FragranceNet. "But given the low cost of Internet retailing, we feel consumers should be given significant savings on all brand name fragrances. And certainly AOL members should have the right to choose based on price and a superior shopping experience."

Apfel went on to say: "FragranceNet feels a serious epidemic is developing in the world of e-commerce when competition is eliminated by exclusive deals which are not in the customer's best interest. Such mistreatment of consumers by online service providers and Internet retailers is short-sighted. It is a sad day for the AOL member if they now will have to pay full retail prices to the Fragrance Counter without competition."

One enticement for AOL, in addition to the money, probably was a stock warrant offer. AOL said once certain revenue thresholds have been met by Fragrance Counter, AOL will also receive (an unspecified number of) warrants from the parent company, Allou Health & Beauty Care Inc.