Services May Keep Separate Exchange HQs Under Streamlining Plan

Deputy Defense Secretary Paul Wolfowitz saw that a global realignment of forces, an upcoming Base Realignment and Closure Act round, and increasing competition from stateside private-sector retailers would require the military exchange system to become more integrated and efficient, retired Air Force Maj. Gen. Charles J. Wax noted during a Sept. 8 interview with American Forces Press Service.

Wax, a former commander of the Army and Air Force Exchange Service, heads the Unified Exchange Task Force that was formed in May 2003 to effect change across the worldwide military exchange system.

AAFES, with headquarters in Dallas; the Navy Exchange, with headquarters in Virginia Beach, Va.; and the Marine Corps Exchange, with headquarters in Quantico, Va., combine for more than $10 billion in annual worldwide sales. Two-thirds of exchange profit, Wax pointed out, is earmarked to fund the services' morale, welfare and recreation programs.

The task force, Wax noted, initially thought to combine the services' separate exchange headquarters into one as part of proposed money-saving initiatives. That step, he said, probably won't be necessary; instead, the organizations' finance and accounting, human resources, information and technology, logistics and non-retail procurement systems will be consolidated to produce savings. Private-sector retailers, he observed, performed a series of similar mergers of business practices over the last 10 years.

Consolidation of business practices across the military exchange system, Wax said, will make exchange operations more cost-efficient and be transparent to customers.

"Once costs go down, profits likely will go up," he noted.

Wolfowitz's guidance to the task force was to not close exchange stores to realize savings, Wax said, noting some customers may mistakenly believe that DoD is attempting to get out of the retail business.

The availability of military exchanges ranks high with servicemembers and retirees, along with benefits such as health care and commissary privileges, Wax said. There'd be great consternation if military exchanges disappeared, he added.

The military exchange system is unique and operates on "a different level" compared to operations at national discount retailers, Wax explained. Generic goods like white T-shirts, he conceded, probably can be bought at cheaper prices at discount retailers.

However, military shoppers can find reasonably priced designer-name clothes and other higher-line items at their local exchange, Wax pointed out. Such goods aren't available at local discount stores, he said, but are offered by exchanges "at a price that is equal to or lower than any other price anywhere."

Addressing the view that exchange operations could be contracted out, Wax said such an action is unlikely, since it would "fundamentally" alter the character of the exchange benefit.

For example, "the American name brands are not available in a Wal-Mart type of store," he pointed out. And, "big-box" discounters, Wax pointed out, would hardly want to subsidize competition between the smaller, lower-grossing exchange operations on military installations against huge "superstores" located outside the gate. It's just not good business, he said.

"From a Wal-Mart perspective," Wax asked, "why do they want to support a relatively smaller store on a base or a post that has a restricted clientele, when their average store - 100,000 square feet - is right outside the main gate with an unlimited clientele?"

Besides that, Wax noted, private-sector-run exchanges would likely be required to channel two-thirds of their profits into military MWR programs.

"Your stockholders are probably not (going to be) thrilled" by such a business arrangement, he noted.

Exchange-system reorganization recommendations should be completed by March, officials say. Following a legislative review cycle, measures to streamline exchanges could be implemented during 2006.

The availability of stateside and overseas exchange stores and their contributions to MWR programs, Wax said, is a long-standing military tradition that enhances the quality of life of service members, retirees, and their families.