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Highlights of the July 2015 Issue


NEXCOM Names Honiball CMMO


• VIRGINIA BEACH — The Navy Exchange Service Command (NEXCOM) named Rich Honiball as its chief merchandising and marketing officer (CMMO), effective June 29. Also, in line with this personnel move, Gary King, who had been acting CMMO since March, during the search for a replacement for former NEXCOM CMMO Tess Paquette, returned to his role as senior vice president (SVP), NEXCOM Store Operations-CONUS.

Honiball brings more than 25 years of industry experience to NEXCOM. Coming most recently from PDB Advisory Group, where he worked with companies in apparel, health care and technology, the executive has experience in creative marketing, consumer loyalty and engagement, and product and brand leadership.

“We are looking forward to having Mr. Honiball join our team,” said Rear Adm. Robert J. Bianchi, SC, USN (Ret.), NEXCOM’s chief executive officer (CEO). “His overall background in merchandising, and specifically his e-Commerce experience, will be a huge benefit to our mission of taking care of our Sailors.” ...

BCG Review Proposes Variable Pricing, Fewer SKUs, Private Label in NAF Commissaries;


• BETHESDA, Md. — As expected, the third-party review of the defense commissary system mandated by the 2015 National Defense Authorization Act (NDAA), assigned to the Boston Consulting Group (BCG) by the Department of Defense (DoD), touches upon all four of the systemic topics specified by the legislation: variable pricing, private label products, converting the commissary system to a nonappropriated fund instrumentality (NAFI) and reducing second-destination transportation (SDT) funding.

It also includes an item that was not mentioned in the Act, Public Law 113–291 — an assessment of consolidating “all or some” military resale operations “to improve efficiency.” In tasking BCG with the review, the Pentagon’s statement of work added the topic of consolidation, a concept that in recent months has seemed to be favored by many in DoD. ...

MCX Transforms Store Staffing, HQ-Field Communications, Logistics


• QUANTICO — Standardizing and optimizing workforce structure to payroll objectives; logistics transformation; and the onboarding of a headquarters (HQ) district staff to identify business and streamlining opportunities, “pain points” and solutions, while leveraging analytics and best practices, are all part of a series of initiatives currently under way at the Marine Corps Exchange (MCX), according to Teresa Peck, branch head, MCX Field Operations. ...

Exchanges’ Dividend Contributions Top $311 Million in 2014


The Army & Air Force Exchange Service (AAFES), the Navy Exchange Service Command (NEXCOM), the Marine Corps Exchange (MCX), and the Coast Guard Exchange (CGX), recently announced their respective fiscal 2014 contributions to Morale, Welfare and Recreation (MWR) programs.

In spite of the fact that the exchange services’ cumulative direct sales of $11.05 billion were down 4.5-percent in fiscal 2014, their combined dividend contribution of $311.7 million represented a 2.1-percent increase from the prior year. ...

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Family Serving Family — Enhancing the Mission and Quality of Life

AAFES Director and CEO Tom Shull


Army & Air Force Exchange Service (AAFES) Director Tom Shull, the first full-time civilian director in the Exchange Service’s history, came to the Exchange at something of a pivot point in its modern saga. Operations Iraqi Freedom and New Dawn had recently ended, tens of thousands of surge troops were departing from Afghanistan, reserve and Guard units were leaving active duty, and families were coming home as the drawdown continued in Europe.

AAFES would need a steady business mind at the helm to position the organization for this new reality. Despite all efforts, sales had nowhere to go but down until troop strengths were normalized — whatever normal would turn out to be. It would also need an experienced retail skillset to help guide it through the supply chain upheavals that characterize doing business in the 2010s, and the new world of outreach to increasingly tech-savvy patrons. Just how to keep AAFES’s value proposition and in-store offerings foremost amongst their shopping options would be a daunting challenge — one that West Point graduate Shull, with major retailer chief executive officer (CEO) experience as well as extensive Army family roots, relished and — undaunted — has proven to be ready for.

As Congress, business consultants, commissions and Pentagon officials examined the various segments of the military resale system, AAFES Director and CEO Shull shared some of his insights in this exclusive interview with Exchange and Commissary News.

E and C News: You have worked in a variety of major retail formats in your career, including Macy’s and Barneys. How different, and how much more of a challenge, is military resale compared with these civilian retail organizations? Can valid comparisons even be made?

AAFES Director and CEO Tom Shull: First, may I kindly tell you how I got this job? The timing was good — I was in Connecticut looking for opportunities to give back. In March 2011, the then-Secretary of Defense converted the Exchange’s commanding general’s position from a major general to a senior executive civilian billet.

At that time, I happened to be looking for an avenue where I could serve others, so coming to the Exchange was the right opportunity to apply what I learned in business for the benefit of my military family.

It’s wonderful to be back in the military community as a member of the Exchange team. I’m passionate about honoring those who serve — by doing what is right by and for them, and standing with them — wherever they’re called to serve. At this point in life, I’m grateful to be in a position to serve those who serve.

Being an Army brat, I knew when I joined the Exchange on June 4, 2012, that the organization was effective in its mission to serve Soldiers, Airmen and their families. But I was also aware that there were clouds of change gathering, including the end of the U.S. mission in Iraq and Afghanistan, a smaller force and continued customer migration to e-commerce.

Fundamentally, retail is about having the right merchandise, at the right place, at the right time. Whether in a public or private setting, the focus is on merchandising and knowing your customers. As a nonappropriated fund instrumentality (NAFI), our behavior is commercial by necessity. Every day, we must prove our existence to the customer, who is free to shop at numerous choices outside the gate and online. We work extremely hard to be competitive.

Therefore, from day one, the team has been focused on implementing commercial sector best practices where possible to maintain the organization’s relevance in the shadow of some formidable challenges.

Having said that, there are indeed differences. First, military resale has more oversight and, unfortunately, some of that is driven by processes rather than results. Second, our marketplace is defined and finite. Unlike a Macy’s or Walmart, we cannot open and close locations at will, and our addressable customers are a sliver of the U.S. population. In summary, our customer interaction is commercial while our governance and customer population is military. It is therefore critical to make every single customer count.

Organizationally, the incentives are different in public service versus private. The monetary rewards are secondary to the personal connection to the mission. Because of the structure and use of deferred compensation plans to retain talent, the government sector, in general, can be more risk-averse due to a greater protection of tenure.

With that said, everyone at the Exchange is truly engaged to do everything they can to offer the best prices and generate robust earnings to support quality-of-life programs servicemembers and their families enjoy. ...

Read the complete AAFES Q&A WITH TOM SHULL ...

Fiscal 2014 AAFES Million-Dollar Vendors


The following list, derived from information furnished by the Army & Air Force Exchange Service (AAFES), identifies 671 suppliers doing more than $1 million in business with the exchange service in fiscal 2014.

The number of million-dollar companies is somewhat lower than it was on the fiscal 2013 list, and the club continues to be an exclusive one. Its membership list is an honor roll testifying to quality merchandise and sustained performance.

According to AAFES, dollar amounts shown reflect sales versus finance and accounting payments. Previous years’ rankings shown here are based on data furnished in 2014 and 2013.

In the following list, sales generated by subsidiaries, bottlers, wholesalers and distributors of beverage producers have in general been rolled up into one sales figure, assigned to the producer.

In some cases in which each of two or more divisions of a single company did more than $1 million in business with AAFES, sales from divisions/subsidiaries have been combined into a single total. In others, divisions and related companies are listed separately and are marked with an asterisk (*). Not included on the list are government agencies and instrumentalities with which AAFES does business. ...


Stationery Floor Spaces Change, Back To School Still Head of Class


The Army & Air Force Exchange Service (AAFES) is undergoing a major two-year “laser-focused” re-sizing of its floor space, and this is beginning to have an impact on the stores and departments that have already undergone these changes, as well as on those that expect to sometime soon. The extent of these changes on the Exchange’s school supplies and stationery area is expected to be significant.

“We will not know the full impact of the re-sizing of floor space until this initiative is fully implemented,” said Melissa Mick, AAFES’s headquarters based stationery buyer, adding that the rollout schedule has a project completion date of September 2017.

However, Mick said that with the reduction of school and office supplies by 40 percent, that going forward, “space will be allocated based on categories that have been identified as growth opportunities and on the demographics by location.” ...


AAFES CANDY: Leveraging ‘80/20 Rule’ to Keep Customers 100-Percent Satisfied

The everyday candy assortment in Army & Air Force Exchange Service (AAFES) stores brings the most popular candy brands and items to the exchange service’s worldwide roster of stores. As far as Exchange Everyday Candy Buyer Diana Turgut is concerned, the familiar “80/20 rule” — a rule-of-thumb that 20 percent of products in a category account for 80 percent of the sales — is a useful guide when it comes to honing the optimal assortment.

According to Turgut, the rule is particularly relevant in candy assortment planning “when determining where opportunities exist to implement new innovation. This type of management allows the Exchange to keep a fresh assortment with relevant new items that customers are looking for.”

Turgut added that as the Exchange finds that vendors “offer more and more configurations of the same items — such as Reese’s in a standard bar, king-size bar, extra-large bar, bites, laydown bags, value bags, and so on — we have to minimize the number of pack types on underperforming items to make room for pack-type innovation. This is especially true in the stand-up pouch-pack type, which is expected to grow at 10 percent each year for the next five years.” ...


AAFES SNACK AVENUE: Promotions, Cross Promotions Spur Sales on the Avenue

Sales activity in the Army & Air Force Exchange Service’s (AAFES) Snack Avenue convenience section — an Express department featuring an array of snack and quick-food items, including some healthier-eating options — continued to grow in fiscal 2014, and sales are sustaining their upward climb, bolstered by significant promotions and cross-promotions, during fiscal 2015.

AAFES Snack Avenue Buyer Danielle Pelland reported that fiscal 2014 sales in this area were $74.6 million, a 10-percent increase from the $67.8 million in sales from the prior year. Pelland added that Snack Avenue is continuing to post solid increases thus far during 2015, with an 11-percent sales increase, putting it 4-percent over plan. ...




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