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 nonappropriated 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.
ALA’s annual conference is going virtual. It’s not as good as seeing each other in person but it’s the next best thing. Plans are underway to have ALA’s annual conference on October 19 and 20. Agenda, registration and details on in the works. All of the moving parts of this business will be highlighted by speakers from resale agencies, the Administration, Congress and industry.
Hurricane shutters military bases in Florida panhandle & Gulf coast. Here we go again. The Florida panhandle and Gulf coast is a hub for military bases including Naval Air Station Pensacola, Naval Air Station Whiting Field, Tyndall AFB, Eglin AFB, Hurlburt Field and Keesler AFB. Exchanges and commissary operations are being affected with closures or curtailed operations and many base residents are being asked to shelter in place and with some bases locked down.
Tyndall AFB was virtually destroyed when it was hit by a hurricane in 2018 that caused $5 billion in damage. There are some 1,700 coastal military sites worldwide. The Pentagon has ordered all military services to use a new database for planning and construction that tracks the probability of flooding events.
Bringing it to brink…again. I reported last week that the Federal government was probably going to be funded with a “continuing resolution” that funds the DoD and other Federal agencies at last year’s levels. It looks like they are going to go right up to the October 1 wire with a bill being placed on the floor of the House of Representatives next week.
Congressional action on resale programs delayed. I reported last month and now it’s official. The Congress won’t be moving on the National Defense Authorization Act until after the election. Several policy issues are being deliberated including resale funding, consolidation of resale programs, and reviews of DeCA business operations. ALA is working with our Hill contacts to represent industry and patron views.
Military resale and vaccine distribution. Distributors are stepping forward and ALA is working with the Department of Defense and HHS to examine the feasibility of using the military distribution channel to help get the vaccine to military personnel and others, especially at far-flung areas of the world. We are citing the regular rhythm of delivers in both chill and frozen as a capability that could aid in the vaccine distribution effort. HHS and CDC are working to develop a comprehensive pan for vaccine distribution and setting priorities for who gets the vaccine first. An Army General has been put in charge of Operation Warp Speed, an Administration program to get the vaccine produced and distributed. Commercial retailers are also working with Warp Speed to get the vaccine distributed and administered.
DeCA and industry collaboration accelerates. Two efforts underscore a renewed effort by DeCA to engage with industry to boost sales and create store excitement. Next week, ALA will host a series of category reviews and joint business planning sessions. And, DeCA has announced “top-to-top” reviews with its industry partners to “support a culture of collaboration through proactive collaboration and facilitate the development of sound business objectives,” according to a notice to trade signed by Mike Dowling, DeCA’s Chief Operating Officer. The reviews will include category insights, performance measures, market competitive data, product innovation and more. ALA has supported this effort and we look forward to continued renewed efforts to join hands with DeCA and power sales.
VCS getting hit hard by the pandemic—seeking relief. Of all of the military resale programs, perhaps none has been hit harder by the pandemic than the Veterans Canteen Service with major hits on sales and operations in the VA hospitals due to visitor restrictions and other pandemic prevention measures. $140 million was included in a version of the Senate pandemic relief measure but the House and Senate are deadlocked on that relief package. Efforts are underway to have a new vehicle to get needed funding to VCS. ALA is supporting measures to get relief to VCS in order to avoid furloughs of VCS employees. If funding relief materializes, it could come in the form of shifting internal VA funding to relieve operations or Congressional Action.
VCS has been heroically maintaining operations at the hospitals in spite of the pandemic restrictions and has been supporting Veterans hospital programs during the Western wildfires and impacts from the 2020 hurricane season. There is massive precedent for providing this aid. We are pressing for the same relief for VCS that is being given to DoD non-appropriated fund programs where more than $300 million has been allocated to DoD exchange and MWR programs. And, ALA is pushing to have all branches of the Armed Services in DoD be supported with funding. The Navy and Marine Corps leadership has stepped forward with aid and the Army and Air Force is beginning to recognize the need and allocate funding to relieve the plight of exchange and MWR programs caused by the pandemic.
Germans taxing U.S. troops? Germany has threatened to impose tax penalties on troops and civilians who it says, “have special ties to the country.” The Germans are arguing that a service member or DoD civilian who extends their rout, marries a local person or does anything else that suggests special ties to Germany could be liable for taxes on all military pay they received while in Germany. The American government is pushing back citing tax exempt status of the Status of Forces Agreement.
Biden transition team ramping up. It’s far from over and certainly far from decided but the Biden camp is putting together its transition team anyway. The team is a mix of left and center with many veterans of the Obama Administration. Members include: Bob McDonald, former CEO of Proctor and Gamble; and, Jeff Zients, Obama’s National Economic Council Director. Permanent staff include Cynthia Hogan, a former lobbyist for Apple; and, Jessica Hertz who worked at the Obama Justice Department and was recently a director and associate general counsel at Facebook. There are about 4,000 political positions that get filled with each incoming administration.
Beer in commissaries review. Reports are that DeCA and DoD are reviewing the program to sell beer in commissaries to determine whether to continue and expand the program. Considerations are space and patron demand. The program was started about two years ago to provide convenience for patrons who are provided with this availability in many off-base grocery stores. Beer and wine are currently sold in ten commissaries with sales at about $2.5 million.
Pentagon News/Military News:
This week in Congress: Countdown to shutdown, election
(Military Times) Congress returns to work this week with less than four weeks of scheduled legislative days left on the 2020 calendar and just 16 days to pass a new budget agreement or risk a partial government shutdown.
Proven leader’: More than 200 former military leaders endorse Trump in open letter
(Washington Examiner) The Trump campaign released an open letter Monday signed by 235 retired military leaders expressing their support for President Trump’s reelection.
1. Trump, Biden offer detailed breakdown of their military and veterans plans
(Military Times) In responses to a questionnaire compiled by the Military Officers Association of America, the presidential candidates promised a strong focus on military and veterans issues but varied approaches on their goals of helping troops and their families.
Defense industry worries Congress will punt budget deal into 2021
(Defense News) As Congress readies a stopgap spending measure this week, the defense industry is girding for a long-term funding patch that could delay both new procurement programs and needed fiscal certainty into next year.
5. Army COVID-19 vaccine may produce a side benefit: Cure for the common cold
(McClatchy) Scientists at the Walter Reed Army Institute of Research are advancing a vaccine that may be able to prevent strains of the common cold in the future.
When will the US military return to pre-COVID normal? Probably never, this admiral says
(Military Times) Don’t count on the U.S. military returning to the pre-COVID-19 status quo, according to the commander of U.S. Strategic Command, Adm. Charles “Chas” Richard.
specialists at the unit level and certified financial planners at Fleet and Family Readiness Centers, he said. “Sailors should …
Mall operators Simon Property Group and Brookfield Property Partners have struck a deal to acquire J.C. Penney’s retail business for $300 million in cash and $500 million in assumed debt, lawyers said in a Wednesday bankruptcy court hearing. The deal, which will allow the retailer to avoid liquidation and keep 650 stores open, will split off Penney’s real estate assets into a separate arm owned by the retailer’s creditors.
Home Depot will roll out two months of Black Friday-type deals as part of a plan to tailor its holiday shopping strategy to the restrictions of the pandemic. The home improvement retailer will offer deals via its mobile app first and will also team with Pinterest to showcase ideas for making DIY gifts.
The ALA Commissary Council invites you to a WebEx Virtual Event.
This event requires registration (free!). After you register, you’ll receive a confirmation email message with instructions on how to join the event.
Industry Joint Business Planning Sessions
WHEN: Tuesday, September 22, 2020 – Thursday, September 24, 2020 **TIMES IN SCHEDULE BELOW**
HOST: ALA Commissary Council Member Stephanie Supplee, email@example.com
Industry Joint Business Planning Sessions is part of a series of virtual events hosted by the ALA Commissary Council.
We will begin with a kick-off session featuring guest speaker Tracie Russ, Director of Sales from the Defense Commissary Agency. Following the kick-off there are seven individual sessions with DeCA Category Managers where we will focus on Joint Business Plans from a category perspective. Please be prepared to discuss, we will have time for open dialogue during this session.
Attached to this invite is the JBP template with an example, please complete your company specific plan and return to your category manager by September 15th. Any questions regarding the template itself should be directed to Mike Bender, firstname.lastname@example.org.
Participants must register for each individual session, please use the links below to register now! (NOTE CHANGES TO SESSION TIME)
|Sept. 22||1100-1230||Kick-off Session w/ Tracie Russ||REGISTER JPBS|
|Sept. 22||1400-1530||JBP1 w/ Barbara Merriweather||RTE Cereal, Soup, Coffee, Spices||REGISTER JBP1|
|Sept. 23||1100-1230||JBP2 w/ Rena Dial||Paper, Laundry, Household, Pet Food||REGISTER JBP2|
|Sept. 23||1300-1430||JBP3 w/ Jessica Stables||Cheese, Yogurt, Refrigerated Juice, Frozen Prepared Meals||REGISTER JBP3|
|Sept. 23||1500-1630||JBP4 w/ Darrell Clary||Bacon, Sausage/Lunchmeat, Juice, Water||REGISTER JBP4|
|Sept. 24||1100-1230||JBP5 w/ Iveena Henderson||CSD, Snacks, Cookies/Crackers, Candy||REGISTER JBP5|
|Sept. 24||1300-1430||JBP6 w/ Bridget Bennett||Specialty Produce, Cut Fruit & Veg, Salad Mix||REGISTER JBP6|
|Sept. 24||1500-1630||JBP7 w/ LaRue Smith||Oral Care, Shaving, Diapers & Training Pants, Body Wash & Soaps||REGISTER JBP7|
hot trunk in summer and place in the air-conditioned car instead. The DeCA website is a good resource for food safety. To find the…
curbside pickup under a pilot program that expanded to two other locations. DeCA discontinued it in June 2019 to make way for the …
DeCA Sales Declines Continue Despite Overall Food Price Increases:
(Supermarket News Reports)
U.S. food prices were up 4.1% in August on an unadjusted basis from a year ago, outpacing a 1.3% year-over-year gain in the overall Consumer Price Index (CPI).
The U.S. Bureau of Labor Statistics (BLS) said Friday that the food-at-home CPI climbed 4.6% over the last 12 months, with pricing up for all six major grocery-store food groups. Fueling the increase were meat, poultry, fish and eggs, which rose 7.1% since August 2019, driven by a 9.6% surge in the index for beef. BLS reported that year-over-year upticks in other grocery food groups ranged from 2.7% for fruit and vegetables to 5.7% for dairy and related products.
DeCA August Sales Results:
($29,463,767.00 a decline of 8.08%)
In a related release from Supermarket News:
Foot Traffic is rebounding outside the gate while the military resale system continues to navigate access restrictions:
Base access, store restrictions continue to plague commissaries and exchanges. It’s a nagging problem for both commissaries and exchanges for years, and when the coronavirus pandemic hit earlier this year, it made things that much worse for these military stores and shoppers wanting to use them, ALA’s Larry Lapka reports.
The emergence of the pandemic was particularly difficult for retirees and veterans — perhaps among the most at-risk groups related to the pandemic — and their ability to get on base to do their shopping in their local military stores.
Numerous rules and restrictions have been put in place by base commanders to limit access to their respective bases, and when these were lessened or relaxed, retirees and veterans were often the groups that were thought to need the most protection, and thus, had their base access more limited than other groups.
And this stance was eerily ironic, as the pandemic hit when the American Logistics Association (ALA) was working with the resale agencies to boost access to military stores, including the January 1, 2020 launch of expanded privileges for disabled veterans and its work to allow the Defense Department’s civilian workers to have shopping privileges.
Although through the end of August many sites had loosened the tight restrictions they had implemented when the pandemic struck, other bases were more cautionary, and this had a major impact on store sales during this period.
The exchange services are generally reflecting sales downturns, and although at least some of this can be attributed to lessened gas sales, the fluctuations of access during the pandemic must also be taken into account.
Through July 2020, the Army & Air Force Exchange Service’s (AAFES) fiscal 2020 sales were $2.91 billion, a 10.1-percent decrease from the $3.23 billion it accrued a year earlier.
The Navy Exchange Service Command (NEXCOM) and Marine Corps Exchange (MCX) followed suit. NEXCOM’s fiscal 2020 sales through July were $1.03 billion, an 8.7-percent dip from the $1.13 billion it posted through July 2019. The MCX reported $381.09 million in sales through July 2020, a more than 9-percent drop-off from year-to-date fiscal 2019 sales of $410.67 million.
Only the Coast Guard Exchange (CGX) posted heightened sales, with its activity through July at $81.49 million, a 16.3-percent increase from the $76.65 million it posted a year earlier. This might be attributed to some of the larger CGX facilities operating in off-base sites in civilian areas, making patron access easier.
ALA publishes base access restriction lists with bases limiting access for retirees and disabled veterans, and “elderly” shoppers and limited hours for other patron categories.
AAFES/Industry Workshops Announced
ALA Members will be invited (invitation only) to 6 Virtual TEAMS workshops currently in planning phase as follows:
President and Chief Merchandising Officer (CMO) Ana Middleton to open and outline objectives for all sessions
• Hardlines Vice President Chris Burton-Collaborative discussion on but not limited to market share ideas/ ways to optimize military business
• Consumables Vice President Eric Sidman- C-Store programs:
Food/Beer/Wine/roller grill and other self serve food programs in place in Express and other retail stores: Grab &Go/Beer &Wine/Roller Grill/other self serve food items sold in Express and other stores.Looking for open dialog and brainstorming post covid limited to 20 vendors! Industry will lead session
• Planning, Allocation and Replenishment Vice President Eric Boen: This session is back due to popular demand from our last session-Business Operations/driving growth and partnership
• eCommerce Drop Ship Vendors and other online services- If you are a small drop ship provider or other service vendor and want to participate in the online program this is your session!
• New Members pathway- Shark Tank format, new members and potential new members may present their products to the Exchange buying group for consideration. If you ever wanted to sell to the exchange a service or product this is your opportunity to present to the commodity buyer
• Product Information (PID) capability tool workshop (ongoing)
And More Expected for 2020 send your ideas for programs to email@example.com
for the Education of Young Children. Huachuca’s Family and Morale, Welfare and Recreation directorate received $212.7K in community
of Military AutoSource is authorized by The Exchange (AAFES) and Navy Exchange (NEXCOM) and maintains operations in close to 70 …
Mark your Calendar
Date Event More Information
September 22, 2020 Industry Joint Business Planning Sessions is part of a series of virtual events hosted by the ALA Commissary Council. Web-EX event. Participants must register for each individual session, please use the links below to register now! 11:00- 1st Session
Pending Coordination NEX-MCX Virtual Update TBD
Pending Coordination AAFES-Industry Virtual Work Shop’s TBD
October 19-20, 2020 ALA National (Virtual) Convention Virtual Event