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Editorial Comment — March 2015

The Devil You Know …

As the Pentagon champs at the bit to revamp some of the non-pay benefits most highly valued by military service families, it should heed the hint Military Compensation and Retirement Modernization Commission (MCRMC) Chairman Alphonse Maldon dropped during congressional testimony last month: hold your horses.

He cautioned that attempting to speed things up could lead to “failed ... efforts.”

In a position paper issued Feb. 9 responding to the commission's proposals regarding military resale operations, the Army & Air Force Exchange Service (AAFES) takes a similar tack, suggesting “further investigation” and “further analysis.” We agree that both are definitely called for.

Perhaps most disconcerting in the MCRMC's proposal and others circulating in the halls of government for consolidation of the military resale systems, and drastic diminution of the benefit, is the seeming lack of understanding of the depth of the interrelationship of commissaries, exchanges and MWR activities. While the relationship is acknowledged, exactly how vital each is to the other seems to be glossed over. In a favorite metaphor of former Defense Commissary Agency Director (DeCA) Maj. Gen. Richard E. Beale Jr., USA (Ret.), they fit together like a three-legged stool, and if any of the three legs is removed or cut short, the entire stool collapses.

Regarding consolidation, the commission based a good part of its study on 20th-century due diligence and reports from 1989 — before the collapse of the Soviet Union — through 1999, when NATO went to war in Kosovo, and the euro first made its appearance. Many of the improvements and cooperative efforts suggested in those reports have already been accomplished over the past 16 and 26 years.

The AAFES position paper, while agreeing with many of the commission's recommendations, differs on two crucial points, stating that (1) a merger would cause exchanges to forego or delay valuable initiatives critical to continued earnings growth; and (2) many of the recommendations could be implemented without merging the organizations at all.

In any case, AAFES suggests that further analysis “should include the option of maintaining status quo with continual improvements.”

In the business world, mergers are fraught with unforeseen difficulties and according to many evaluations, have little chance of achieving success. Some sources say at least 40 percent fail; some say as many as 90 percent. More mergers fail than marriages, CNN reports, citing numbers to prove it. AAFES settles on several recent studies that claim nearly two-thirds of business mergers, in fact, “destroy value.”

“Destroy value.” That bears repeating.

In the proposed merger of appropriated-fund commissaries and nonappropriated-fund exchanges into a quasi-governmental entity, a feat never before attempted, there are fewer factors that could lead to savings than there are in the business world, as there are no tax benefits, no reduction in branding or marketing expense, and few stores to close. Never was there a merger so well-positioned to fail as this. One gets the impression that those proposing it — for all their military organizational experience — have never even run a store or a retail operation.

AAFES backs up its position paper with detailed analysis, suggestions and civilian retail data, with insights from experience gained in retail operations both inside and outside the gate. They indicate that it would take from 85 to 127 years to repay the costs of consolidating.

What is perhaps nearly as disconcerting in the talk of consolidation is possibly a lack of concern for the human toll. Servicemember dependents and other family members make up about 24 percent or more of the exchange and commissary workforces; and as much as 62 percent of the workforce has some military connection. Similar military family connections run throughout the dedicated military-specific civilian companies and industry segments that support the military resale system. Many of them have invested lifetimes, even generations, in these businesses, and they continue hiring within the military community.

After decades of hiring veterans, hiring wounded warriors and hiring heroes, consolidating military resale is one sure-fire way to undo a lot of good.

Further investigation and further analysis are indeed needed before any legislation required to restructure military resale operations be enacted; and no proposed “solution” should be rushed into.

In the meantime, “maintaining status quo with continual improvements” seems a far better option than to dismantle a highly valued system that, once taken apart, can never be put back together again.

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