Words from Director/CEO Tom Shull: 2018 Strategic Priorities, What We Accomplished

As the Exchange awaits audited financial numbers for 2018, which we’ll get in May, now is a good time to look at what the team accomplished.

Associates worldwide are committed to growing sales, earnings and dividends to protect the Exchange benefit for our Nation’s Warfighters and their families.

The Exchange’s pre-pension, unaudited net earnings in 2018 stand at $387 million, 21 percent higher compared to Plan and 3 percent higher than in 2017.

These strong results are a testament to your continued focus on improving the customer experience and lowering costs. Thanks to each of you, the Exchange benefit continues to thrive!

Here is a brief look at our 2018 accomplishments:

Intensify MILITARY STAR

Because of your support for the program and telling shoppers about MILITARY STAR’S benefits, the Exchange Credit Program has returned the following to our customers:

• MILITARY STAR purchases saved the Exchange $30 million in bank transaction fees, increasing dividends and the Exchange’s ability to reinvest in the military communities.
• 1.6 million cardholders saved an estimated $315 million in interest, compared to bank-issued credit cards; $8 million on military clothing; $4 million with the 5-cent per gallon discount on fuel; and $1.2 million on free online shipping.
• $1.9 billion in sales at Army, Air Force, Navy, Marine Corps and Coast Guard exchanges, commissaries and Army MWR facilities, an increase of 7.4 percent above prior year.
• $35 million in total rewards for cardholders, a direct dividend to service members and their families.
• The MILITARY STAR mobile app launched in October. Accountholders can check balances, track spending and rewards, pay bills and find promotional offers through the app. During the app’s first 75 days, 85,000 customers downloaded it, logged in 550,000 times (three every minute) from 23 countries and set up 52,000 payment plans.
• More than 366,000 commissary customers used their MILITARY STAR card in 2018 to purchase $248 million in groceries.

Intensify the Veterans online shopping benefit and customer relationship management

Taking time to advocate for the Exchange, teams across the enterprise continued to lead the way in welcoming our Veterans home! These combined efforts helped the Exchange achieved the following for this Nation’s Veterans:

• 57,500 Veterans shopped online through  www.ShopMyExchange.com.
• 177,000 online orders were placed by Veterans.
• Online sales by Veterans reached approximately $40 million.
• Total online sales rose to nearly $388 million, an increase of 17.8% compared to last year.

Optimize concessions, food and main store business

Understanding needs and desires of the Exchange’s military family members worldwide, managers and associates pushed to provide unique and innovative shopping choices along with the “taste of home” wherever these families were stationed.

• Total food sales were $927 million, more than $21 million above Plan and more than $23 million more than 2017.
• The Services team opened 39 new name-brand businesses in 2018. Services sales were nearly $1.4 billion, $33 million above Plan and $29.4 million above 2017.
• The Exchange opened 52 name-brand restaurants, all with better-for-you options, including Qdoba, Starbucks, Panda Express, Subway, Boston Market, Sarku and, in Europe, Bun D.
• 27 free movie screenings, such as “Spider-Man: Into the Spider-Verse” and “Holmes & Watson,” were shown to Warfighters deployed to Southwest Asia.
• The Exchange realized $156 million in fuel gross profit, surpassing the previous record of $137 million in 2017.
• New mall brand standards,including logos, graphics, storefront signing, polished concrete floors, refreshed kiosks and lighting fixtures, were implemented at select locations in 2018. Worldwide rollout will continue in 2019. New Services brands highlight the quality, credibility and value available in our shopping centers and bring a look of consistency from installation to installation.

Keep pressing in the year ahead to further strengthen, protect and preserve the unique value that only the Exchange can provide.

Intensify holistic BE FIT program

Working as a valued partner alongside the Army and Air Force, the Exchange rose to the challenge of providing healthy choices and fitness alternatives as a way to augment the military’s continued health and readiness initiatives. The Exchange’s support provided the following:

• Sales of athletic wear and other softlines rose to $179 million, led by sales of brand-name athletic apparel such as Under Armour, Nike, New Balance, Brooks and Adidas.
• Hardline sales of products such as smart watches, fitness trackers and exercise equipment increased to reached $34 million.
• BE FIT consumables sales in main stores and Expresses increased to nearly $70 million. Top sellers includedNestle Pure Life 1-gallon bottles of water; bananas and Glaceau Smart Water.
• To promote wellness, opened five durable medical equipment stores and the Exchange’s first cryotherapy center at Fort Hood.
• The Exchange opened 11 automated, self-service “micromarkets” where customers can choose better-for-you fresh fruit, salads, sandwiches and beverages. The number of micromarkets now stands at 23 at 13 installations.

Invest in e-Commerce and technologies

Associates in our eCommerce and Information Technology directorates worked hard in 2018 to make the following programs work and flourish:

• The Exchange introduced predictive search at www.ShopMyExchange.com, making it easier for customers to find what they need.
• Customers now enjoy improved return processes allowing them to print labels and drop off at the post office or closest brick-and-mortar Exchange.
• Shoppers now can receive alerts on order status via text updates on their phones.
• The Exchange launched Buy-Online-Pickup-In-Store in 106 stores.
• Enhanced ship-from-store locations shipped 39 percent more packages compared to the prior year, for nearly $65 million in sales.

Reduce operating costs

Throughout the enterprise, managers and associates at all levels kept operating expenses as low as possible—and that means more earnings for the military’s Quality of Life programs:

• Personnel costs dropped 0.3 percent vs. 2017.
• Selling, General and Administrative expenses were down 4 percent vs. plan.
• Interest and bad debt expenses decreased 28 percent vs. last year.

Optimize the supply chain

The same holds true for managers and associates in our Logistics Directorate:

• The Exchange cut nearly $9 million in eCommerce shipping, including $7 million through home delivery to online shoppers.
• 16,000 appliances shipments benefited by streamlined distribution to speed delivery and reduce costs.
• $1.8 million was saved by adding UPS as a carrier for small packages in addition to contract renegotiations with other firms.
• The Exchange added new parcel carriers that drove down eCommerce shipping costs by $450,000 in the fourth quarter alone.
• Distribution operational efficiencies drove down cost per case by 3 percent.
• The Logistics Directorate implemented the modern JDA warehouse management system at the Specialized Distribution Center in Dallas.
• The JDA system also replaced the legacy fashions system at the Dan Daniel DC, paving the way for a 10 percent cost reduction for the first quarter of this year.
• The Exchange integrated the modern Oracle Transportation Management System with 170 of the top origin vendors, processing about 12,000 shipments.
• Logistics also completed the first phase of a project that lays the groundwork for turning off another legacy system and improving supply chain inventory accuracy.
• Logistics managers and associates used their brainpower to help the U.S. Transportation Command (USTRANSCOM) develop, test and train for its new transportation management system. USTRANSCOM will use the system to ship Department of Defense cargo around the world.

Because of you, AAFES remains the lead tank in the delivery of hard-earned benefits to Warfighters and their families! Keep pressing in the year ahead to further strengthen, protect and preserve the unique value that only the Exchange can provide.

We Go Where You Go!