When reveille sounds, AAFES rises and shines

DSN Retailing Today, Oct 25, 2004 by Tim Craig

In an industry as predictable as retail, where store formats and merchandising presentations are more about imitation than innovation, it's always refreshing to encounter a surprise. I remember having my breath taken away the first time I visited an HEB Central Market or a Fry's Electronics superstore. One wowed me with its sights and smells, while the other blew me away with its depth of offerings.

But if there's one retail encounter from the last decade that's left an indelible impression on my retail psyche, it's the clay I took my first step into a main store run by the Army and Air Force Exchange Service. For those of you who have had the privilege of experiencing the military exchange, you know exactly what I mean. For those of you who haven't, let me try to explain.

For one, AAFES, which at roughly $8 billion is the largest component of the $10 billion military exchange system, shatters any and all preconceived notions you may have had about military resale. Contrary to the stereotype of pea-green fixtures and no-frills commodity merchandise, AAFES is, by any and all measures, the very model of a modern major general store (my apologies to Pinafore).

This isn't to say AAFES is any more technologically advanced than the next guy, or that its in-store fixtures offer the best in Scandinavian design. Instead, AAFES carries the day for the one thing you'd least expect: its merchandising.

Take the PX at Ft. Hood, one of the largest and best-run stores in the entire military exchange system. Its shoppers are greeted by clean, bright, attractive displays of well-known national apparel brands, including DKNY, Coach, Tommy Hilfiger and more. Nearby, a display of Clinique cosmetics beckons shoppers with soft lighting and the promise of unabashed pampering. Elsewhere in the store, you encounter Le Creuset cookware, Villeroy & Boch stemware, Bodum housewares, and the list goes on.

And true to its objective of stocking good/better/best offerings, AAFES complements its higher-end labels with middle-of-the-road brands as well as an extensive array of cleverly conceived private-label offerings, such as Junction West, Passports and PBX Basics, to name just a few.

The operating incentive behind this merchandising model is perhaps the biggest surprise of them all. Unlike the dog-eat-dog world of cutthroat margins and ruthless Wall Street analysts that so often casts a pall over the rest of retail, AAFES is built around a mission of service. In addition to its well-known motto, "We go where you go" (referring to its commitment to sell goods to servicemen, regardless of their location) AAFES was founded upon--and is still dedicated to--the overriding objective of serving those who serve in the military.

While that may sound like a line from Retail Marketing 101 (analogous to "The Customer is Always Right," or "Service With a Smile") AAFES puts its money where its mouth is. Each year, in fact, a huge chunk of AAFES's earnings are set aside (as part of the AAFES charter) to fund Morale, Welfare and Recreation (MWR). Last year, for instance, $230 million (or 65%) of AAFES's $355 million in earnings were put back into MWR. Talk about an aggressive reinvestment program!

However you interpret such a system--there are certainly those who would call it everything from idyllic to contrived--there's one thing you can't ignore. For all the reinvestment AAFES puts into "the system," it gets every dime back in the form of unwavering dedication on the part of its associates.

In the half dozen meetings I've had with AAFES executives in the last year, one constant comes through time and time again. The career people who work at AAFES are lifers. From the guy with 25 years of experience who has worked in Korea, Japan and Taiwan, to the woman whose 30-year tour has taken her from the Middle East to the middle of Europe, by way of Istanbul, the employees of the Army and Air Force Exchange Service give new meaning to the term commitment.

When all is said and done, though, analyzing AAFES is much more than a day's work. The demographics it targets are anything but simple. Its areas of operations are as spread out as any in retail. And its reliance on the Department of Defense--if not the whole of Congress--make it a retail anomaly for sure.

But having an associate base whose commitment is never questioned is like holding the brass ring of retail. It's what makes the military exchange system so great. And without reservation, it's what makes AAFES The Pride of American Retailing.