The ups and downs of the AAFES economy

DALLAS —While retailers across the board were reporting weak sales trends in home-related categories earlier this year—and still are for that matter—one retailer bucking the trend was the Army and Air Force Exchange Service.

AAFES is a unique organization in many respects and the fact that its sales trends in some categories runs counter to those experienced by other retailers is just one example. “We have seen a significant increase in activity in categories such as home goods, furniture and electronics,” said Ed Bouley, vp of the AAFES sales directorate.

Home entertainment categories are strong, gaming in particular, as are portable navigation systems, he said. “Here we are going into the summer travel season and civilian travel is down but our sales of GPS systems are up 400%,” Bouley said. Even the apparel category, which is under pressure due to its discretionary nature, has increased about 0.5% this year, according to Bouley.

AAFES serves a finite customer base that consists of active duty military personnel, retirees and National Guard and Reserve members. The retiree segment tend to be fairly affluent, active duty personnel have stable incomes and Guard and Reserve members tend to have dual incomes. Even so, those qualified to shop with AAFES are not immune to the economic pressures facing other consumers. That explains why sales of high discretionary categories such as jewelry and computers have declined. Other categories experiencing weakness include outdoor living and grills, although weather issues at the beginning of the year played a factor.

Overall, AAFES sales last year decreased slightly to $8.7 billion from $8.9 billion the previous year and its earnings also declined slightly to $426.2 million from $427.5 million. Despite decreases in those areas, AAFES managed to increase by 17% to $273 million the dividends it paid to support morale, welfare and recreation programs for all branches of the military.

According to AAFES commander Brigadier General Keith Thurgood, the increased dividend was made possible through right-sized inventories, streamlined logistics and a sustained focus on accountability. “This proves that even during tough economic times, the exchange benefit can thrive and remain a relevant quality of life enhancement for its shareholders, the authorized military shoppers who make the BX or PX their first choice,” Thurgood said.

Historically, roughly two-thirds of AAFES’ earnings are paid to morale, welfare and recreation programs with the remainder used to construct new stores or renovate existing facilities.