News

Military Exchange poised to expand facilities, benefits

BY CSA STAFF

DALLAS —One of the nation’s oldest retail operations is embarking this year on its most aggressive expansion program in an effort to become even more relevant to the customers it serves.

The company in question isn’t Sears, Walgreens or JCPenney, but rather the Army and Air Force Exchange Service.

Founded in 1895, AAFES earlier this year set out on a $1.1 billion capital expenditure program involving 85 projects that is the organization’s most aggressive expansion and upgrade of existing facilities in its 111 year history.

“Opening a tiny store on a corner of the post won’t cut it these days,” said AAFES’ commander Maj. Gen. Bill Essex. “Today, troops have more choice than ever before. Now is the time to invest and strengthen the benefit so we are not only ready to handle current challenges, but future ones as well.”

The plan calls for the design and construction of bigger and better exchange facilities referred to as a BX (for an Air Force facility) or PX (for an Army facility). Either way, AAFES is convinced it needs to have facilities in place as troops and their families are impacted by military transformation initiatives such as base realignments and closures and the realignment of the U.S. global defense posture. In essence, AAFES wants to make sure it has modern facilities with a more consistent look in place to serve a highly mobile base of 5.9 million customers who are qualified to shop at its facilities.

“AAFES has a dual mission to deliver products and services while returning earnings to military morale, welfare and recreation programs,” said AAFES’ coo Mike Howard. “My concern for the future relevancy of AAFES doesn’t begin and end at the BX or PX door. Failure to invest in AAFES’ future today could negatively impact many military benefits beyond just the exchange tomorrow.”

That’s because AAFES is a uniquely structured retail operation whose profits are used to fund projects that improve the quality of life for military personnel. Last year, AAFES generated earnings of approximately $335 million on sales of nearly $9 billion. As a result, the organization was able to return $228 million to the Army and Air Force to fund morale, welfare and recreation programs. Over the past decade, AAFES generated approximately $2.4 billion in revenue to fund quality of life programs such as youth services, Armed Forces recreation centers, arts and crafts, aquatic centers, post functions and golf courses. In addition to funding such programs, AAFES earnings are used to build new stores or renovate existing facilities. As a result, the federal government and the nation’s taxpayers don’t incur the expense as capital expenditure funds are generated entirely by the sale of merchandise and services.

This year, AAFES is poised to generate higher sales and profits due to the investments in stores that will improve BX and PX competitive posture. For example, a $32 million shopping center project at Kentucky’s Fort Campbell saw AAFES expand an existing 107,000-square-foot facility with the addition of 165,000 square feet. Next month, a $20 million project at Colorado’s Peterson Air Force Base involves a 134,000-square-foot shopping center.

As there are changes in the external retail environment against which AAFES competes, efforts are being made to develop prototypical concepts that provide AAFES customers a more consistent experience regardless of the base to which they are assigned.

“Prototypical designs allow AAFES to improve on the shopping center brand by incorporating military families’ unique desires and expectations,” said Dan Metsala, AAFES’ senior vp of real estate. “Standardized one-stop facilities can improve customer satisfaction, build loyalty and increase customer shopping duration times to ultimately increase sales and earnings.”

In addition to physical retail stores, AAFES has embraced the concept of being a multichannel retailer with a solid online presence and an assortment of catalogs. One of the newest catalogs targets military retirees, which represent approximately 40% of AAFES’ 5.9 million qualified customers. Release of the 24-page catalog, called Still Serving, is scheduled to coincide with an annual Still Serving sale held at BX and PX facilities and other special on-base events. AAFES also recently distributed a 36-page outdoor living catalog and a 50-page baby book catalog in keeping with its multichannel initiatives.

To generate further profits, AAFES is also promoting the use of its Military Star Card. When qualified AAFES customers use bank-issued cards to purchase merchandise, the fees charged by banks eat into profits. Last year, AAFES said bank processing fees increased 12% and resulted in $65 million in lost revenue that could have been returned to morale, welfare and recreation programs if customers had used the AAFES-issued card. Since 2001, AAFES has paid more than $310 million in fees to card issuing banks.

“With 100% of AAFES earnings going back to authorized customers in one way or another, something as seemingly insignificant as credit card processing fees can quickly add up to a quality of life issue,” said AAFES cfo Harold Lavender.

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FINANCE

Shareholders Approve Name Change to Macy’s

BY CSA STAFF

Cincinnati, Federated Department Stores said Friday that its shareholders approved its corporate name change to Macy’s Inc., effective June 1, 2007.

On that date, the company’s shares will begin trading under the New York Stock Exchange ticker symbol M, which Federated proposed in late March. Federated has traded on the NYSE under the ticker symbol FD since 1992.

“Today represents a milestone in the history of our company,” Terry Lundgren, Federated’s chairman, president and CEO, said in a statement. “By changing our corporate name to Macy’s Inc., we are demonstrating that we are a consumer-driven company focused on growing the Macy’s and Bloomingdale’s brands. In particular, this move will increase awareness of Macy’s, which represents about 90% of the revenue of our corporation.”

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FINANCE

Nordstrom 1Q Profit Rises 19%

BY CSA STAFF

Seattle, Nordstrom Inc. said Thursday its first-quarter profit rose 19%, helped in part by a change in the fiscal calendar that meant the quarter started and ended one week later than in 2006.

For the quarter ended May 5, earnings climbed to $156.8 million from $131.2 million during last year’s first quarter.

Revenue rose 9% to $1.95 billion from $1.79 billion in the year-ago quarter. Comp-store sales grew 9.5%, bolstered by interest in spring merchandise and ahead of Nordstrom’s internal expectations for the quarter, the company said.

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