“As our partners wonder what their long-term future is, they should not even question our survivability. We have many, many years of survivability ahead of us. We plan on coming out of the pandemic healthier and stronger.” Tom Shull. AAFES CEO at the ALA/AAFES on-line conference.
Retail Darwinism and implications for military resale programs. A term is fast emerging and gaining resonance in the pandemic world. It’s called Retail Darwinism—or survival of the fittest.
Some say Retail Darwinism is merely the acceleration of the natural selection process that was already taking place pre-pandemic: Those brick and mortar companies with weak balance sheets falling prey to the severe disruption in customer traffic. And there have been many—Just this past Thursday, Century 21, a popular NY retailer filed for bankruptcy, the latest in some 22 major retail bankruptcies that have taken place since January 2020. Big names like JC Penney, Lord and Taylor, Nieman Marcus, and large niche retailers like Sur La Table and Brooks Brothers. Stock prices for Walmart are up 33 percent, Amazon 67 percent and Target 23 percent.
Meanwhile stock prices for soft goods retailers have plummeted; JC Penney (down 50 precent), Macys (down 50 per cent), Nordstrom (down 46 percent) and Foot Locker (down 26 percent).
The pandemic shifted the retail landscape and the military resale landscape along with it. Mall-based retailers and clothing stores have suffered deep job losses. State authorities ordered many of them to close this spring, and demand for their products has been softer even after reopening as many Americans working from home opt for pajama bottoms or shorts over dress slacks. Employment at clothing stores is down nearly 30% from February.
However, employment at general-merchandise retailers, such as supercenters and warehouse stores, was up 10% in August from February’s pre-pandemic levels.
Americans spending more time at home are upgrading their properties. Home improvement retailers, a category that includes Home Depot Inc. and Lowe’s Co., boosted their employment 6% from February. Consumers have also relied on Amazon and other online retailers, which has led to hiring in transportation and warehousing. In August and September, Amazon announced plans to hire 20,000 people in seven cities across the U.S. and in the U.K And many traditional retailers have proven to be nimble in turning bricks-and-mortar stores into fulfillment centers and locations for curbside order pickup, said Robert Frick, corporate economist at Navy Federal Credit Union. Grocery stores and mass retailers that sell food and other essentials largely remained open throughout the pandemic and saw strong demand.
There probably is no starker example of Retail Darwinism as Simon Properties, Inc. The company’s foray from landlord to owner show just how deeply the pandemic has reshaped the retail industry. Simon shut all 175 of its malls and outlets in March and only collected 51 percent of its rents in April and May. It now is investing millions to prop up failing retailers in hopes of keeping occupancy rates up and rent coming in. They’re paying pennies on the dollar for legacy brands like Brooks Brothers and Luck Brand and is pursuing JC Penney. Their long-term strategy is to be the last major mal owner standing. Analysts expect at least half to two-thirds of the 1,000 shopping malls in the U.S. to close in coming years. Simon is betting that by buying up brands, they can ensure a continued presence it its malls.
Natural selection continues. Amazon is hiring 100,000 more staff across the US and Canada — roughly a 10% expansion of its global workforce — following a sales surge during the pandemic, it announced today. Amazon will also open 100 new operations sites in September alone. These include fulfilment centers where staff store goods and pack orders, delivery stations, and sorting centers. Many of the roles will be at these new sites, it said, and include both full-time and part-time jobs. Amazon has already opened more than 75 new sites and regional air hubs in the US and Canada in 2020. Last week, it opened a new fulfillment center in Beaumont, California with more than 1,000 full-time employees, and earlier in September it announced plans to add 10,000 new jobs to the expansion of its Bellevue, Washington office and retail site, on top of the 15,000 it announced in 2019.
This Darwinism was a major topic at the ALA and AAFES webinar where AAFES CEO Tom Shull spoke to the massive changes taking place in the retail landscape and AAFES efforts to cope. But Shull is bullish on exchange emergence after the pandemic. “As our partners wonder what their long-term future is, they should not even question our survivability. We have many, many years of survivability ahead of us. We plan on coming out of the pandemic healthier and stronger.”
The military exchanges have had their share of pandemic pain. They have been hard hit by traffic and sales declines in apparel and other soft lines. As presented at our conference, particularly hard-hit areas in AAFES included gasoline down 29 percent, food down 23 percent, concessions down 21 percent and Star Card Sales down 12 percent for a c cumulative sales loss of $540 million, just since March.
Meanwhile, over at DeCA, we are seeing steady and striking sales declines ever since a rush of sales in March and April as pandemic base access restrictions continue. Yet, we are seeing bright signs emerging from DeCA including a renewed interest in joint business planning, category management, emphasis on promotions and a strong push from the new DeCA Director Bill Moore who recognizes that, as in any retailer, sales are the first metric and the best barometer of customer acceptance. Said Moore: “We have got to find a way to reverse the trend.”
Contrast this with off base grocery chains that are prospering as are the CPG companies that supply them. Kroger just reported same stores sales up 19 percent and profit up 57 percent and out of its 2,800 stores, 2,100 offer pickup and 2,400 offer delivery. Albertsons same store sales rose 27 percent and digital sales nearly quadrupled in its quarter ended June 20. Target’s same store sales are up 24 percent with digital sales tripling.
We operate on base and we need to figure out how we make quazi-government retail operations more of a blessing than a curse. Pandemic base access restrictions are taking their toll on sales both at the exchanges and commissaries. DeCA taking note that for the first time at many locations, sales to active duty military exceed sales to retirees. But, pushing up against this disadvantage are multiple inherent advantages to operating retail in a Government environment.
Consider what sets the military channel apart from other channels in the retail natural selection process. It has many inherent advantages; no state or local taxes, free real estate, heavy government funding support for commissaries, a heavily diversified exchange program with a strong balance sheet, a grocery program that has virtually all of its expenses paid by the Government, a growing 40-million plus eligible patron base and more or less steady military population, a moratorium on base closures, strong political and military leadership support, the infusion of some $4.6 million a day in free cash flow to the system, and a funding infusion for both exchanges and commissaries from pandemic stimulus funding that is pushing to some $500 million in appropriations to support to underwrite the non-appropriated fund operations of the DoD.
And, from a business standpoint, MCX, NEX, and AAFES are not standing still during the pandemic. All are exploiting their diversification and riding a wave of growth in certain categories including home, consumer electronics, food and beverages, and health and wellness.
And, as Retail Darwinism sorts itself out, the exchange and commissary retailers need to be sensitive to the impact that the pandemic and their efforts to cope are having on their suppliers, particularly suppliers that do not have the balance sheets to withstand the pandemic. Government retailers should want their small and large industry partners to survive the pandemic.
There are a lot of moving parts to this resale equation. That’s where your Association comes into play. Through the Exchange Council, the Commissary Council and the Board of Directors, decisions are being made, calling upon the best and brightest in the industry, to do what we can to help out military retail partners weather the pandemic and emerge stronger in the end.
Going forward, we are going to be tracking, researching and informing you of all of the moving parts to the military resale and off-base commercial dynamics that are pushing and pulling the business. And, we will continue to be active with policymakers in Congress and the Administration to gain support for funding and policies that can aid military retailers and the industry that supports them to weather the pandemic and come out stronger on the other side.
The system needs to leverage its inherent advantages of being a Government business along with its dedicated network of manufacturers, brokers and distributors that want the channel to succeed. With the right leadership and the right decisions, there is no reason why, in this survival-of-the-fittest world, we will be among those naturally selected to succeed.
ALA will be there with more relevant information you can use, conferences that provide meaningful and relevant content, and a program that leverages member expertise for the good of the whole to ensure the system and the industry that supports it comes out on top in a post-pandemic world. Our content at the upcoming Annual Convention will focus on survival of the fittest. ALA members need to engage, get active, and work together to leverage our inherent strengths for a bright post-pandemic future.