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Editorial Comment — November 2013


Business in the New Normal

Not long ago, during Operation Enduring Freedom (OEF) and Operation Iraqi Freedom (OIF), military resale enjoyed strong tailwinds as troop strengths built up. Dozens upon dozens of military retail venues of every type were established in the Southwest Asia theater of operations, and commissaries in Europe and the far Pacific were bursting at the seams with large numbers of troops and their families.

Today, however, with only a handful of U.S. troops, all noncombatants, left in Iraq; the after-surge force in Afghanistan reduced by half to around 51,000; a head-spinning drawdown in Europe; tens of thousands of National Guard and reserves deactivated following their return Stateside, and other force reductions well under way, the pool of customers actually shopping in resale outlets is suddenly noticeably smaller.

How much smaller? The number of National Guard and reserve forces currently activated stands at 49,000, roughly half of 2011's 94,500 and down from more than 200,000 at the height of the war in Iraq. Since the summer of 2011, when there were still 50,000 troops in Iraq waiting to depart by the end of that year, the number of soldiers in the active duty Army has dropped by nearly 7 percent; and the Marine Corps is 2.5 percent smaller than it was two years ago. In fact, the Pentagon ended FY 2013 with almost exactly the same total active duty strength it was authorized to have on Sept. 10, 2001.

Additional shrinkage in the resale shopper universe is yet to come: The Army plans to cut its active-duty force another 8 percent to 490,000 by the end of FY 2015, earlier than originally expected, and is looking at further significant reductions later. Navy and Air Force strengths, drastically reduced over the past 12 years, continue to be tweaked and nudged downward. Early this month, Marine Corps Commandant Gen. James Amos took a strong stand against possible further cuts to the Corps beyond the 2017 end-strength of 174,000 — already more than 11 percent below the current level.

Another kick in the pants is that a number of troops who have returned Stateside no longer live anywhere near a commissary or exchange. And despite resale's best outreach efforts, they primarily use the numerous other shopping options nearby.

Reductions in the customer base are not all resale has had to deal with.

These past few months have been a very bumpy ride that included the end to a 2-percent temporary payroll tax cut; the effects of an anemic economy in key military pay demographics; sequestration-induced furloughs; a very costly government shutdown (not the smartest move in Congressional history), and restrictions on on-base alcoholic beverage sales that are expected to cost millions of dollars in sales, with a domino effect upon millions in dividends to Morale, Welfare and Recreation (MWR).

As a result, people throughout this industry are having to come to grips with an environment where — aside from a few hot growth categories — the torrid sales volumes seen during OEF and OIF are no longer realistic.

Living with sales and unit numbers that are not as high as they were before troop reductions, sequestration and budget cuts will not be pretty; and in some cases real-dollar revenues might very likely drop below those of the pre-OEF/OIF period. But this is the hand most in industry and resale have been dealt: fewer servicemembers; less business.

As we all move forward, the new environment will most likely demand some difficult adjustments across the board, and a lot more conversations about the supply chain before we get a better handle on military resale in 2014, 2015, and beyond.


Rethink, Regroup, Reconnect ...

The costs of doing business have gone up, and curtailing them is on a lot of people's minds. All the military resale organizations are looking for “efficiencies” in every nook and cranny of the supply chain, and trying to find ways to do things with fewer personnel, especially above store level.

So why would things be any different for industry? Brokers, for instance, have dramatically reduced their commissions over the years; they are not what they were even in the recent past, and they are most certainly not in the same ballpark as in “the good old days.”

Industry is finding new ways to control costs, and like government, has put the squeeze on travel. It costs manufacturers, distributors and the broker community — just as it does the commissary agency and the exchanges — an enormous amount to fly everybody in whenever there's a meeting or conference.

During times like these, it's very difficult for any industry association to put meetings together with substantial participation by employees of any government agency or instrumentality. That includes the American Logistics Association, and military resale.

Just as all of us involved in this market need a dynamic association, we also need to connect. ALA must mount a concerted effort to sign up new members and to encourage those who have left to come back. It must reach out to all its members for ideas, maybe come up with new dues and registration packages, perhaps revamp some meeting agendas. For the association to thrive, things need to change.

So many members have worked very hard for and with the association and deserve a “high five” for all they have accomplished; but with decreasing budgets and membership, it's time to take a long, hard look and find ways to rebuild.

Perhaps it's time to regroup, just as resale itself has done, and rethink the entire conference and meeting calendar, including discussing the viability of conducting fewer meetings and holding them in the most logistically accessible locations to decrease costs as well as increase attendance. Bumped-up attendance, of course, synergizes everything: enlarges the scope, enlivens the discussion, improves return on attendee investment, enhances the value of sponsorships, even helps build membership.

The smaller the meetings get, the more people encounter the dreaded teleconference, and the more they are discouraged from returning for more of the same. It's no secret that people do not fly thousands of miles to watch a video feed. They fly to get together face to face.

Maybe there's a way to work an added day into the time window of a meeting or conference, so as to tie it in with another conference or event — for instance, to combine the Congressional Caucus with the national convention, providing a little more face time for everybody involved and, again, hopefully increasing attendance.

Such a plan might make it less onerous and more appealing for our government partners, give them bigger and better events to cross-pollinate ideas and broaden dialogue, and save everybody a boatload of budget dollars in the process.

Let's rethink, regroup and reconnect!


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