[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 112-133]
MILITARY RESALE PROGRAMS OVERVIEW
__________
HEARING
BEFORE THE
SUBCOMMITTEE ON MILITARY PERSONNEL
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
HEARING HELD
JUNE 7, 2012
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
SUBCOMMITTEE ON MILITARY PERSONNEL
JOE WILSON, South Carolina, Chairman
WALTER B. JONES, North Carolina SUSAN A. DAVIS, California
MIKE COFFMAN, Colorado ROBERT A. BRADY, Pennsylvania
TOM ROONEY, Florida MADELEINE Z. BORDALLO, Guam
JOE HECK, Nevada DAVE LOEBSACK, Iowa
ALLEN B. WEST, Florida NIKI TSONGAS, Massachusetts
AUSTIN SCOTT, Georgia CHELLIE PINGREE, Maine
VICKY HARTZLER, Missouri
Michael Higgins, Professional Staff Member
Debra Wada, Professional Staff Member
James Weiss, Research Assistant
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2012
Page
Hearing:
Thursday, June 7, 2012, Military Resale Programs Overview........ 1
Appendix:
Thursday, June 7, 2012........................................... 21
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THURSDAY, JUNE 7, 2012
MILITARY RESALE PROGRAMS OVERVIEW
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Davis, Hon. Susan A., a Representative from California, Ranking
Member, Subcommittee on Military Personnel..................... 2
Wilson, Hon. Joe, a Representative from South Carolina, Chairman,
Subcommittee on Military Personnel............................. 1
WITNESSES
Bianchi, RADM Robert J., USN (Ret.), Chief Executive Officer,
Navy Exchange Service Command.................................. 5
Dillon, William C., Director, Semper Fit and Exchange Services
Division, Manpower and Reserve Affairs, U.S. Marine Corps...... 7
Gordon, Robert L., Deputy Assistant Secretary of Defense,
Military Community and Family Policy, Office of Under Secretary
of Defense for Personnel and Readiness......................... 3
Gordy, Thomas T., President, Armed Forces Marketing Council...... 9
Hendricks, Brig Gen Francis L., USAF, Commander, Army and Air
Force Exchange Service......................................... 4
Jeu, Joseph H., Director and Chief Executive Officer, Defense
Commissary Agency.............................................. 6
Nixon, Patrick B., President, American Logistics Association..... 8
APPENDIX
Prepared Statements:
Bianchi, RADM Robert J. (Ret.)............................... 49
Davis, Hon. Susan A.......................................... 26
Dillon, William C............................................ 75
Gordon, Robert L............................................. 27
Gordy, Thomas T.............................................. 108
Hendricks, Brig Gen Francis L................................ 35
Jeu, Joseph H................................................ 62
Nixon, Patrick B............................................. 81
Wilson, Hon. Joe............................................. 25
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
[There were no Questions submitted during the hearing.]
Questions Submitted by Members Post Hearing:
Mr. Wilson................................................... 133
MILITARY RESALE PROGRAMS OVERVIEW
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House of Representatives,
Committee on Armed Services,
Subcommittee on Military Personnel,
Washington, DC, Thursday, June 7, 2012.
The subcommittee met, pursuant to call, at 2:37 p.m., in
room 2212, Rayburn House Office Building, Hon. Joe Wilson
(chairman of the subcommittee) presiding.
OPENING STATEMENT OF HON. JOE WILSON, A REPRESENTATIVE FROM
SOUTH CAROLINA, CHAIRMAN, SUBCOMMITTEE ON MILITARY PERSONNEL
Mr. Wilson. Ladies and gentleman, the hearing will come to
order.
Today, the subcommittee will examine the military resale
programs within the Department of Defense [DOD], specifically
the commissaries and exchanges operated by the Department.
These programs are widely acknowledged as highly valuable and
appreciated benefits that support Active Duty retention, the
well-being of the military community, and the combat readiness
of the force.
These services are vital for our service members, military
families, and veterans worldwide. In the current economy,
commissaries and exchanges provide extraordinary job
opportunities for military spouses and families.
However, the recent pressures on the defense budget have
yielded a number of initiatives to reduce funding for these
programs and decrease their value to service members and their
families. Although the threats to these programs were
significant in 2011, the coordinated efforts of all of the
members of the subcommittee, and in particular the ranking
member, Mrs. Susan Davis, we were successful in fending off
significant budget reductions.
Unfortunately, we cannot declare a victory in this battle
as the continuing pressure to shift budgets within the
Department of Defense will energize the people who do not fully
appreciate the value of these programs. This pressure can only
be expected to increase in the coming months as the Congress
debates the devastating reductions to defense accounts that are
associated with the sequestration process scheduled to begin
next year, which destroys jobs.
Let me be clear. I remain a strong supporter of military
commissaries and exchanges, and will continue to work in a
bipartisan manner to ensure these programs endure through this
era of budget challenges and remain the effective benefits that
have long served our men and women in uniform and the Nation
for so long.
I would like to introduce our witnesses. Mr. Robert L.
Gordon. He is the Deputy Assistant Secretary of Defense,
Military Community and Family Policy, Office of the Under
Secretary of Defense for Personnel and Readiness. Thank you for
joining us again.
Brigadier General Frances L. Hendricks, Commander of the
Army and Air Force Exchange Service [AAFES].
Rear Admiral Robert J. Bianchi, Retired, Chief Executive
Officer [CEO] of the Navy Exchange Service Command [NEXCOM].
Mr. Joseph Jeu, Director and Chief Executive Officer of the
Defense Commissary Agency [DeCA]. Mr. William C. Dillon,
Director, Semper----
Fit. Pardon me. It is Semper Fit. Okay, good. Semper Fit
and Exchange Services, Manpower and Reserve Affairs Department,
Headquarters of the U.S. Marine Corps. Mr. Patrick B. Nixon,
President of the American Logistics Association [ALA]. And Mr.
Thomas T. Gordy, President of the Armed Forces Marketing
Council.
There are a number of familiar faces among the witnesses.
Mr. Gordon, Mr. Jeu, and Admiral Bianchi, welcome back to all
of you. Especially you, Admiral Bianchi, as you begin your new
life out of uniform, as a civilian.
And welcome back to our witnesses that bring us important
perspective of the private sector--Pat Nixon and Tom Gordy. It
is good to see all of you here today.
General Hendricks, I understand you will soon be retiring
from the Air Force after 32-years-plus of service. Please
accept our gratitude for your service to our Nation and our
best wishes for your future.
Mr. Dillon, not wanting to leave you out, welcome for the
first time.
[Laughter.]
Mr. Wilson. I would also like to make note of the
retirement last week of Ms. Janis White, the Director, Resale
Activities and Nonappropriated Fund [NAF] Policy, after 34
years of service. Janis' expertise and wise counsel were highly
appreciated by this subcommittee, and we wish her well in her
future endeavors, which I understand will include considerable
time on the golf course. And we do have one or two at Hilton
Head that are available.
[Laughter.]
Mr. Wilson. Now I would like to recognize the ranking
member, Mrs. Susan Davis, for her opening remarks.
[The prepared statement of Mr. Wilson can be found in the
Appendix on page 25.]
STATEMENT OF HON. SUSAN A. DAVIS, A REPRESENTATIVE FROM
CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON MILITARY PERSONNEL
Mrs. Davis. Thank you. Thank you, Mr. Chairman. And I want
to join you in welcoming all of our witnesses. And you have
certainly welcomed everybody. And welcome, those of you who are
here wearing a different hat, or no hat.
And I also certainly want to say that for General Hendricks
we wish you the best in your retirement, after 30 years of
tremendous service to our country. Thank you. Thank you very
much.
And, Mr. Dillon, of course welcome to the subcommittee. We
are very happy to have you here as well. Thank you all for your
service to our Nation and many thanks to your family as well.
This is our annual meeting, as you know, on morale, welfare
and recreation [MWR] programs. And we consider that these
hearings are very important, and we know how critical the
programs are to our families and the value that they hold for
our military community.
Over 10 years of conflict has placed a tremendous burden on
those in uniform and also on their families, and especially on
their children. I always want to remember the impact that our
conflicts and the wars that we have engaged in have been on the
children of those serving in uniform.
It is important in today's All-Volunteer Force that we
ensure that the quality of life support that our families need,
that they know where that support is, and that they know that
it comes through many, many of these programs.
As the budget climate begins to change, MWR programs will
still be needed. And we are going to have to provide a
wholesome quality of life for our Armed Forces personnel and
their loved ones.
These programs will need to ensure that they are spending
limited resources efficiently. That is a requirement that we
ask of them; that they are using those resources efficiently
and effectively to ensure that both taxpayer and service member
funds are being spent wisely.
So during this hearing, we hope that the witnesses will
share with us what efforts they are undertaking to ensure that
these programs are effective at maximizing resources in support
of military personnel and their families.
I certainly look forward to that, to an open and frank
discussion on these issues. The dedication and the commitment
MWR employees have displayed to our military families under
very challenging conditions, that we are really thankful for
their contributions. You play a very important role in doing
that.
Thank you, Mr. Chairman. I look forward to hearing from
witnesses.
[The prepared statement of Mrs. Davis can be found in the
Appendix on page 26.]
Mr. Wilson. Thank you very much, Mrs. Davis.
And we will now proceed to the witnesses in the order as I
indicated. Mr. Robert L. Gordon.
STATEMENT OF ROBERT L. GORDON, DEPUTY ASSISTANT SECRETARY OF
DEFENSE, MILITARY COMMUNITY AND FAMILY POLICY, OFFICE OF UNDER
SECRETARY OF DEFENSE FOR PERSONNEL AND READINESS
Mr. Gordon. Thank you, Mr. Chairman and members of the
subcommittee. I am delighted to appear before you today, and I
appreciate this subcommittee's tradition of strong support for
important benefits derived from our resale programs.
Commissaries and exchanges are a highly valued, non-pay
compensation benefit for our service members and their
families, and we appreciate that you also recognize their
value. The Department's leadership remains committed to these
important programs. Secretary Panetta has been clear that we
want to maintain the quality of benefits that flow to our
troops and their families.
Also, our industry partners here today share our keen
interest in preserving the valuable commissary and exchange
benefit. Everywhere I go on my visits to military communities I
hear of the tremendous appreciation for, and in some cases the
need for, commissaries and exchanges.
Often they are only the source of high-quality American-
made products. But equally important, they are the lifeblood to
many of our installation support programs.
I also see how important it is to have these programs that
are the number one employer of our military family members. In
fact, DeCA and the military exchanges are partners in the
Military Spouse Employment Partnership, and each has committed
to recruiting, hiring, and retaining military spouses as
employees.
Their jobs are listed on our newly redesigned Web portal,
where military spouses can easily apply for positions around
the world as a relocating military spouse.
My written testimony outlines our ongoing work in greater
detail. Please be assured that as we continue to institute
necessary changes we will always consider these services as one
of the most valuable non-pay benefits. We will do our very best
to take care of our most valuable assets--our service members
and their families.
Thank you again for your support.
[The prepared statement of Mr. Gordon can be found in the
Appendix on page 27.]
Mr. Wilson. Thank you very much.
And we now proceed to Brigadier General Francis L.
Hendricks.
STATEMENT OF BRIG GEN FRANCIS L. HENDRICKS, USAF, COMMANDER,
ARMY AND AIR FORCE EXCHANGE SERVICE
General Hendricks. Mr. Chairman and members of the
subcommittee, thank you for the opportunity to address you
today. AAFES has proudly served America's Armed Forces for 117
years and remains focused on our longstanding mission, to make
the lives of soldiers and airmen better.
Strong exchange benefit is one of the cornerstones of the
military way of life. It enhances recruitment and retention,
thereby aiding in the readiness of the Armed Forces.
I want to thank the committee, and specifically Congressman
Jones, for the language you included in last year's National
Defense Authorization Act [NDAA] that authorized the exchanges
to use the Federal Finance Bank. Your effort will result in an
annual savings of $25 million.
AAFES is a committed partner and teammate of the military
resale community. Together with our sister exchanges and DeCA,
we are fully engaged in pursuing new opportunities for
collaboration and efficiency for 2012 and beyond.
Of course, we don't do this mission alone. I want to thank
our vendor partners and military support organizations,
especially the American Logistics Association and the Armed
Forces Marketing Council.
Our commitment to the military community extends beyond
just the goods and services we provide. We have made a
significant commitment to hiring members of the military
community.
Thirty-one percent of our 43,000 associates are military
spouses and family members. Veterans make up 13 percent of our
workforce. We have partnered with the Wounded Warrior Project
to recruit and train valuable associates.
Finally, with the recent end of U.S. military operations in
Iraq, it is worthwhile to reflect upon our efforts to serve
those serving there. In the early spring of 2003, as U.S.
ground forces fought their way up the Euphrates and Tigris
Rivers, AAFES was with them. Our first store in Iraq operated
out of the back of a Toyota Land Cruiser. As troops advanced
northward, so did our store.
From those humble beginnings, AAFES support continued to
grow. And at the height of the efforts in Southwest Asia we
operated 95 sites throughout the theater. During the next 8
years more than 4,000 AAFES associates volunteered and deployed
to operate retail stores and food activities in support of the
troops. We brought them familiar products and services, and the
food they craved.
In that moment, at that place, we brought a little piece of
home to them. We did that mission for 8 years in Iraq, and we
continue to do it in Afghanistan today.
Mr. Chairman and members of the subcommittee, thank you
again for your support. We are here to serve [H2S]. I look
forward to your questions.
[The prepared statement of General Hendricks can be found
in the Appendix on page 35.]
Mr. Wilson. Thank you very much. And I saw firsthand your
service overseas and in-theater, and I know how much the troops
truly appreciated this service.
Rear Admiral Robert J. Bianchi.
STATEMENT OF RADM ROBERT J. BIANCHI, USN (RET.), CHIEF
EXECUTIVE OFFICER, NAVY EXCHANGE SERVICE COMMAND
Admiral Bianchi. Chairman Wilson, Ranking Member Davis, and
distinguished members of the subcommittee, I am pleased to
appear before you today, and privileged to be back at NEXCOM as
the first civilian CEO; proud to once again lead this
tremendous group of 14,000 dedicated professionals around the
globe.
Today, much is asked of our men and women in uniform. And
in an environment of smaller budgets and fewer forces, more
will be asked of them. Nonappropriated fund programs are an
important factor in increasing retention, improving readiness,
and sustaining the quality of life of our Active Duty military,
Reservists, Guard, retirees and their families.
Navy exchanges, through savings at the cash register and
funding for MWR programs, deliver more than a six-to-one
payback of appropriated fund support, providing an effective
and efficient mechanism to deliver the benefit our military
families want and value.
Support to our military families is vital, and in these
tough economic times they expect more and rely on us more. Our
2011 annual market basket survey results show that customers
save an average of 23 percent below commercial retail prices,
not including sales tax, generating over $500 million in non-
pay compensation.
And for the second year in a row, our annual customer
satisfaction index survey remained at an all-time high of 83,
placing us in the top tier of industry retailers.
New to the survey this year were questions to help us
better understand how we connect with our military families.
Customers responded very favorably that Navy exchanges make
them feel connected to the Navy and demonstrate the Navy's
commitment to their family needs.
But NEXCOM delivers much more than savings. No commercial
retailers have the depth and breadth of services that NEXCOM
provides, nor do they go where we go; places like Djibouti,
Africa, and Diego Garcia. We provide career opportunities for
our military families and veterans. In fact, over 26 percent of
our workforce are military family members.
We bring a touch of America to sailors and their families
around the world. With the support of our industry partners, we
offer programs focused on military families, including customer
appreciation events and joint events with the commissary and
MWR. As a department of our base commands, we are also there
during crises, as evidenced by our support to families during
the earthquake and tsunami in Japan last year.
We are focused on supporting the Secretary of the Navy's
21st Century Sailor and Marine initiative. Together with the
other Navy departments, we will help sailors make good choices.
We are, and always will be, a military organization that
contributes to personal and family readiness.
Because our sailors depend on us, we are working to deliver
the benefits in the most efficient manner, while remaining
relevant for the future. Aligned with our industry partners and
our sister resale agencies, we continue to work on taking costs
out of the system, ensuring these valued non-pay benefits
remain viable and strong for generations to come.
What we accomplish cannot be done without the strong and
unwavering support of this subcommittee. You have sent a clear
message that these programs which support military families are
critically important. We thank you, and are grateful for your
support.
I look forward to your questions.
[The prepared statement of Admiral Bianchi can be found in
the Appendix on page 49.]
Mr. Wilson. Thank you very much. And it is particularly
important you indicated that 26 percent of your personnel are
persons of military families. Thank you for bringing that point
up.
Admiral Bianchi. Sure.
Mr. Wilson. And we proceed now to Mr. Joseph Jeu.
STATEMENT OF JOSEPH H. JEU, DIRECTOR AND CHIEF EXECUTIVE
OFFICER, DEFENSE COMMISSARY AGENCY
Mr. Jeu. Chairman Wilson, Ranking Member Davis, members of
subcommittee, it is my pleasure to provide the annual report on
the state of the commissary benefit. As I visited many
commissaries and conversed with our customers, I can assure you
the commissary continues to be one of their most valued non-pay
compensation benefits, at the same time providing taxpayers an
excellent return on investment.
Few, if any other, benefit systems can boast a two-for-one
investment return. Last fiscal year, the commissary provided
direct savings to commissary customers of $2.8 billion, for a
taxpayer cost of $1.34 billion. The indirect support benefit,
as outlined in my statement for the record, adds hundreds of
millions of dollars more.
Yet, some question whether today's commissary is
antiquated. With 260,000 patrons visiting a commissary every
day, buying $16 million in goods, there is no doubt the
commissary remains relevant and an invaluable element of the
non-pay compensation package. We have much to be proud of this
year.
In particular, they include achieving an unqualified audit
opinion of our financial statement for the 10th consecutive
year; being recognized with the Secretary of Defense's best
mid-size component award for employing individuals with
targeted disabilities; and the Paralyzed Veterans of America
employable award for expanding employment opportunities for
veterans; and supporting socioeconomic programs including $571
million in contracts with small and disadvantaged businesses,
and contracting for another $133 million going to AbilityOne
program.
In closing, I would like to thank the members of this
subcommittee for their continued support of the commissary
benefit, and I look forward to your questions.
Thank you.
[The prepared statement of Mr. Jeu can be found in the
Appendix on page 62.]
Mr. Wilson. Thank you, Mr. Jeu.
And we now proceed to Mr. William Dillon.
STATEMENT OF WILLIAM C. DILLON, DIRECTOR, SEMPER FIT AND
EXCHANGE SERVICES DIVISION, MANPOWER AND RESERVE AFFAIRS, U.S.
MARINE CORPS
Mr. Dillon. Thank you.
Chairman Wilson, Ranking Member Davis, distinguished
members of the subcommittee, thank you for inviting me here
today to discuss our Marine Corps exchange and retail programs.
The Marine Corps Exchange is directly linked to our mission of
taking care of our marines, sailors, and their families, and it
is an important part of the overall non-pay compensation
package.
Our operational success is measured on our ability to
provide unparalleled customer service, premier facilities, and
valued goods and services at a savings. We believe that keeping
faith means ensuring that the exchange benefit on which
families depend remains high in quality, relevant, and
accessible.
We are executing branding strategies, and our aggressive
reinvestment into main stores has been greatly appreciated by
our patrons. Over the past 8 months, I have attended grand
openings at Twenty-Nine Palms, Henderson Hall, Camp Lejeune,
and Camp Pendleton. The new and refurbished main exchanges look
great and offer a wide selection of right-priced, relevant
merchandise in a shopper-friendly atmosphere.
Our marines' gratitude for being provided these premier
facilities is evidenced by their positive comments and by the
strong sales results since opening. I would also like to point
out, in support of hiring vets, spouses, and family members,
that about 29 percent of our retail employees are family
members. And many others are veterans.
With our Marine Corps Exchange, marines, sailors, and
families can rely upon a high-quality product at a fair,
competitive price and know that the proceeds are reinvested in
their community, their exchange, and their MWR programs,
creating a stronger Marine Corps.
On behalf of marines, sailors, families, and Marine Corps
Exchange employees, I would like to thank you for your recent
letter commemorating the Marine Corps Exchange's 115th
anniversary, coming up on September 17th of this year.
I appreciate the subcommittee's oversight and continued
strong support of retail activities, and I look forward to your
questions.
[The prepared statement of Mr. Dillon can be found in the
Appendix on page 75.]
Mr. Wilson. Thank you very much, Mr. Dillon.
And we now proceed to Mr. Patrick Nixon.
STATEMENT OF PATRICK B. NIXON, PRESIDENT, AMERICAN LOGISTICS
ASSOCIATION
Mr. Nixon. Thank you, Mr. Chairman. It is once again an
honor to appear before this subcommittee representing the
membership and board of directors of the American Logistics
Association.
The ALA is over 90 years old, and its members consist of
some of the largest consumer packaged goods companies, service
providers, retail brokers, and distributors in the world.
In addition, this year I am honored to represent the
members and valued associates of the Coalition to Save Our
Military Shopping Benefits. The members of the coalition
consist of many military patrons, resale employees, and
thousands of Americans that care about how we take care of our
military families.
The valued associates of the coalition include the National
Military Family Association, the Fleet Reserve Association, the
National Industries for the Blind, and our colleagues here
today, the Armed Forces Marketing Council. They understand the
importance of these benefits to the military, and have stepped
forward to add their voice to the discussion.
I also want to take this opportunity to recognize the
leadership of the chairman and the distinguished ranking member
over the course of the last several years, in particular your
support of these vital benefits we will discuss today.
I want to specifically recognize the subcommittee for the
construct and conduct of these hearings over the last several
years. The transparency of strategy, discussions, and
collaboration are a clear testament to the value of this unique
public-private partnership that supports and delivers these key
benefits for our military and their families.
The ALA has undertaken an additional initiative this year
by working with Secretary Gordon and the White House to harness
the employment engine of the ALA member companies to support
the initiative of hiring veterans and military family members
outlined by the Joining Forces initiative, under the leadership
of the first lady.
The ALA member companies committed to hiring of 25,000
veterans and military family members, which is 25 percent of
the program goals. A point that also deserves recognition is
the fact that the military resale system is the largest
employer of military family members and veterans in America.
Mr. Chairman, we have provided, in our testimony for the
record, an outline of thoughts, concerns, and recommendations.
During the past year, the Congressional Budget Office [CBO]
deficit reduction recommendation has served as the basis for
several attacks on the resale system. We take great exception
to their assumptions and findings, and have included specific
concerns about the CBO report in our prepared remarks.
We are clearly approaching the perfect storm of budget
impacts, with extreme implications for every American. In any
meaningful evaluation of the way ahead, there needs to be a
review of all programs. But that review must take into account
those programs that can serve as a benchmark for efficiency,
effectiveness, and return on investment to the American
taxpayer. The military resale system is just such a program.
The savings delivered by the systems provide a two-to-one
return to the taxpayer, and the benefits continually rank near
the top of the valued benefits to the military. When you take
into account the equity derived from the patrons' investment in
infrastructure, the offsets to cost-of-living adjustments
[COLAs], the offsets to military transportation costs, the
employment opportunities provided military family members, and
the support provided to morale, welfare and recreation
programs, the economics are clear. These elements are captured
in our formal testimony and I am sure will surface in our
discussions today.
Thank you, and I am prepared to answer your questions as we
proceed.
[The prepared statement of Mr. Nixon can be found in the
Appendix on page 81.]
Mr. Wilson. Thank you very much, Mr. Nixon.
And we now proceed to Mr. Thomas Gordy.
STATEMENT OF THOMAS T. GORDY, PRESIDENT, ARMED FORCES MARKETING
COUNCIL
Mr. Gordy. Chairman Wilson, Ranking Member Davis, and
members of the Personnel Subcommittee, thank you so much for
allowing the Armed Forces Marketing Council to participate in
today's hearing.
I wanted to begin first by offering our most sincere
appreciation to you, Mr. Chairman and Mrs. Davis, for your
leadership last year in getting 67 other Members of Congress as
well as most of the members of this subcommittee to sign the
letter to the Secretary of Defense sharing this Congress'
support for this very valuable benefit.
We also were very grateful to Congress for passing the
repeal of the 3 percent withholding requirement on government
contracts last year. This subcommittee was instrumental in
highlighting the adverse impact that the impending enactment of
the withholding requirement would have on the commissaries in
the exchanges.
Passage of the repeal has saved hundreds of thousands to
millions of dollars from being unnecessarily spent by the
resale systems, protected MWR dividends, and insured the prices
at the shelf remain low for the patron.
The council would also like to go on record and thank the
member associations of The Military Coalition and the National
Military and Veterans Alliance for their efforts last year in
opposing S. 277 and the Coburn amendment to the 2012 National
Defense Authorization Act, both of which called for
consolidation of military resale as promoted and proposed by
the Congressional Budget Office that Mr. Nixon spoke of
earlier.
Because of the combined efforts of so many individuals and
organizations, we are happy to state that both pieces of
legislation were not passed by the Senate. We also want to
recognize the success of the Department of Defense and the
military resale systems to continue to deliver a world-class
benefit for military families.
In my mind, one event occurred last year that completely
demonstrates the importance of the benefit and the valuable
partnership that makes it all work. When the earthquake and
tsunami struck Japan in April of last year, military resale
systems, working with industry partners and the services,
ramped up efforts to ensure that military families stationed in
Japan had access to food, water, milk, and other essential
items like diapers and baby formula. And as the father of a 16-
month-old, I couldn't imagine life without diapers, let me tell
you.
[Laughter.]
Mr. Gordy. The resale stores in Japan remained stocked,
while the stores outside the gate were empty. Not only did the
system support our military families, but also was able to
support the recovery effort with essential supplies, providing
the United States with another element of humanitarian support
to our friends in Japan. And it should also be noted there were
no price increases on the products at the shelf.
There is a strong partnership between the Congress, the
Department of Defense, and the services and the resale industry
to insure the effective, efficient, and continuous delivery of
this very important quality of life benefit for our military
families.
There are, however, issues of concern to the council that
we have highlighted in our written testimony, and look forward
to addressing those and other concerns in today's hearing.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Gordy can be found in the
Appendix on page 108.]
Mr. Wilson. Thank you very much, Mr. Gordy.
We will now proceed into a round of members of the
subcommittee asking questions. We are under a strict 5-minute
guideline, and we have a person above reproach who will be
maintaining that time. Of course that is Mike Higgins.
And so as you see him grimace, that means the 5 minutes is
up. But we will begin with myself. And then we will proceed
with our other subcommittee members.
As I indicated in my opening statement, I am very, very
concerned about the effect of sequestration, the defense cuts,
as to the impact on our service members, military families,
veterans. The defense budget has been cut $100 billion. It has
been cut further by $487 billion. And now we are facing,
January 1, an across-the-board cut of nearly $600 billion. It
has been interpreted it could be between 8 percent to 12
percent of the defense spending.
And, Mr. Jeu, what would be the affect of such a cut on the
defense commissary agency of sequestration?
Mr. Jeu. Sir, first let me talk a little bit about the--I
think DeCA has been a model agency for efficiency. Since DeCA
was created in 1991, we have achieved over $900 million in
savings, and reduced our full-time [FT] employees by 6,600
people.
And so, consequently, there is not very much left in terms
of significant savings. So should there be any cuts with the
sequestration or in other means, it would have direct impact on
our service and benefit to our customers.
Mr. Wilson. And I appreciate you raising this for the
American people to know. And I am just so hopeful that there
can be bipartisan addressing of this issue.
General Hendricks, Admiral Bianchi, and Mr. Dillon, another
issue would be appropriated funding. If that were eliminated,
what would be the impact on your ability to provide services?
General Hendricks. Sir, the limit of appropriated funding
would hinder some of the ability of us to do that. Our main
concern right now would be overseas utilities, which are now
paid for through appropriated funding.
We would either have to account for those on the business
line, or they would come out of the MWR piece. Either way, it
is going to end up hurting the family members and the soldier,
airman, sailor, and marine. So it would have a direct impact.
Admiral Bianchi. Sir, I would offer that, from the
appropriated funds [APF] side, one of the primary activities
that are funded is second-destination transportation. So if
there were any reductions there, those funds are certainly
critical to us providing quality goods and services to our
forward-deployed service members to make sure they have access
to comparable levels of service as their counterparts here in
the U.S.
So if there were any reduction, that would potentially
limit our ability to provide those services. And I guess I am
mostly concerned about places where there are limited options
outside the gate, like Gitmo or in Djibouti. So, you know,
there are certain locations in particular where no one has an
opportunity for an alternative source of supply.
So yes, sir, there could clearly be an impact there.
Mr. Dillon. Chairman Wilson, I would echo what the Admiral
had to say in terms of the concern that I would have with
second-destination transportation not being supported.
In addition to that, as you probably know our facilities,
our exchange facilities are supported. The maintenance on those
facilities is covered by appropriated funds today on our
installations. If those funds were to be depleted in any way,
then over time our facilities would begin to deteriorate. We
may not be able to maintain them for future marines coming
through the gate.
Mr. Wilson. And thank you each, because you have really
brought a real-world circumstance of utilities, of
transportation, of maintenance. And again, thank you.
Mr. Nixon and Mr. Gordy, what would you believe is the
private sector reaction to the sequestration cuts?
Mr. Nixon. Mr. Chairman, the impacts would be devastating,
clearly. We know that. And I commend your leadership recently
in bringing the issue of sequestration to the forefront. It is
an item we must discuss, we can no longer avoid. Because action
soon needs to be taken to address what is going to happen.
The principal use of appropriated funds for the Defense
Commissary Agency is employees, around 70 percent. The impact
on the exchanges for the elimination of appropriations would
just devastate their ability to provide any support for MWR.
From our Save Our Benefit Web site, I have a quote. We ask
for testimonials. And here is a quote I want to read; Kathleen
in Ohio. ``Our family is a proud military unit. We didn't
enlist our family in the military to get rich. However, at
times it seems to be a bit of a struggle to make ends meet. If
Congress decides to eliminate our commissaries and exchange
benefit, it will make it impossible to raise a healthy family,
much less survive. Please do not end these benefits. We are a
strong military family. But if faced with this, re-enlistment
is no longer an option.''
That is the impact on the military.
Mr. Wilson. That is gruesome.
And Mr. Gordy, very briefly.
Mr. Gordy. Well, just to echo what has already been said,
you know, the impact would be devastating. At the end of the
day what it means is that military families would not only have
to earn this benefit, but then they would also have to pay for
it.
So therefore, there is no longer any benefit, and it would
be hard to call it that going forward. As Mr. Jeu pointed out,
you know, there is not a lot of fat to cut in their budget. And
so the only way, if it comes down to a salami-slicing of 8 to
12 percent, it is the military family who is going to end up
feeling the pain once again.
Mr. Wilson. And again, thank you very much.
And we now proceed to Mrs. Susan Davis.
Mrs. Davis. Thank you, Mr. Chairman.
And I think you have all really made the economic argument,
and certainly the support for our troops and for our families.
I wonder, though. And I can assure you that we support you in
that and certainly advocate in that way.
Having said that, though, you have dealt with consolidation
before, particularly General Hendricks and Mr. Bianchi, Mr.
Dillon in the exchange systems. And I am wondering what kinds
of preparation you have been under. You know, option 6 I think
you looked at, and 11.
What is it that you are doing to sort of help, I guess, to
outline that preparation? And part of that, I think, is some of
the advocacy that we can use to really paint a very clear
picture for people of what this means.
You have already stated that. I don't want to ask you to
have to do that again. But can you let us in on some of the
specific plans that really help to address some of these issues
if, in fact, some of the concerns around consolidation were to
move forward?
Mr. Gordon. Well, let me start off very quickly. But the
Department has no plans at this point to examine exchange
consolidation. In the past, there have been seven studies.
Those studies have basically shown that consolidation of our
exchanges actually can do more harm than good in terms of cost
savings and innovation.
And I am happy to say, and I will let the commanders speak
for themselves, that through partnership and through
cooperative efforts--and we have many examples of those--that
our three exchange systems are robust and vital as they
currently stand.
Admiral Bianchi. I guess I would just offer a couple of
specific examples where the exchange commanders are working
together as was kind of the outcome of the last study which was
the Unified Exchange Task Force [UETF]. That consolidation
really is the more efficient and effective means.
At NEXCOM, we share facilities with AAFES for van stuffing
to send products to Japan and Guam. The Marine Corps Exchange
uses our distribution center. We support 120 Marine Corps
locations through our distribution center.
We just negotiated a contract for motor fuel in Hawaii
between the exchange and NEX and AAFES. We are saving $3.7
million. We share a contract for inventory-taking equipment
that saved over $200,000.
So there are opportunities out there. We have a very strong
cooperative efforts board [CEB]. We formally added Joe Jeu of
DeCA to the organization this year. We also added the Coast
Guard Exchange as an ad hoc member. We meet on a regular basis.
And we have subgroups that are constantly looking for ways to
save, to consolidate and become more efficient.
And those are just a few. I mean, we publish a report every
year, submit it to the Department, of our efforts. And I think
we have demonstrated over the years that we turn every rock
over and look for opportunities to consolidate and
save.
---------------------------------------------------------------------------
Subsequent to the hearing, the witness informed the
committee that he intended to use the terms ``cooperation'' and
``cooperate'' rather than ``consolidation'' and ``consolidate'' in the
three instances indicated.
---------------------------------------------------------------------------
Mrs. Davis. Are there any areas that you have followed in
the past that for whatever reason have just been very difficult
to do? I mean, what are the obstacles as you try and look at
some of those areas where you can be more effective?
And obviously you have been successful in doing that. I am
wondering, are there some areas, though, that are just really
difficult? And is there any way in which we could be helpful in
that way?
Mr. Dillon. I would like to address that to some extent,
Congresswoman Davis. The services have cooperated on a number
of areas. One of them that has been very successful in certain
ways has been in private label sourcing of merchandise.
The exchange select program in consumables has been
extremely helpful for all of the exchanges; a wonderful
product, as good as you can find. I know we have a Proctor &
Gamble representative here but, hey, our stuff is really good.
[Laughter.]
Mr. Dillon. But there are probably other areas, I think,
that we could explore in this, in private label, that would
generate some savings to a great extent that we need to pursue
as an organization with the cooperative efforts board that we
probably haven't gone after as much as we should have.
Mrs. Davis. Thank you.
Did you want to----
General Hendricks. Yes, ma'am. I was just going to say
that, you know, since that last study we have really, really
embraced collaborative efforts in regards to communicating
better with one another.
Just the other day I did an announcement that goes into all
the commissaries and the exchanges over our radio system on the
upcoming Army's birthday. I called my good friend Joe Jeu and
said, ``Hey, here is what I just said. You just take my name
out, put yours in, because our radio plays in the commissary
and our stores.'' We are going to record him tomorrow, too.
It is very important that the military community hears all
of us and sees us all working together. So I am very excited
about where we are headed in our efforts, the new CEB, adding
Joe and the others to the team this year. Communication is key
as we move forward with the deficit reductions that are coming
that we are looking every way we can to assist the community.
Mrs. Davis. Thank you.
Thank you, Mr. Chairman.
Mr. Wilson. Thank you, Mrs. Davis.
We now proceed to Congressman Alan West of Florida.
Mr. West. Thank you, Mr. Chairman and ranking member. And
thanks for the panel for being here and, sir, ``Rangers lead
the way.''
As we just finished voting on the fiscal year 2013 military
construction [MILCON] appropriations last week, my first
question is, are we meeting your requirements, or what
percentage are we meeting the requirements, of the services you
provide as far as military construction? I know we just talked
about a new facility there, but are we keeping up with the
demands that you all are placing?
Admiral Bianchi. Sir, I would say we have a very robust
recapitalization plan. The Navy's formula is 70-30, so all the
profits that I make, 70 percent go to MWR, 30 percent are
retained for recapitalization. And our recapitalization budget
averages between $30 million to $50 million each year. In fact,
we are just getting ready to cut the ribbon in the fall in
Bethesda at the new 150,000-square-foot store.
So we all realize, I think, that if we don't have fresh
facilities, modern facilities, our patrons will vote with their
feet. They deserve a recapitalized infrastructure and we are
committed to doing that.
And with the Navy, at least, we have a strong board
oversight, an MWR exchange board run by three-stars across the
Department. And part of their job is to ensure that this
recapitalization plan continues.
So I believe we are meeting that need. And we do not have a
backlog. We have a very structured approach to that, sir.
Mr. Dillon. I would also like to add to what the admiral
had to say. Our program, too, is very structured. We are doing
very well. I addressed some of the most recent main exchanges
that we have opened. We have a number of Marine Marts that we
will be touching over the next few years.
But I think to get to your point, sir, in terms of where
MILCON can help out, with most of these exchange programs that
we have and construction programs there is a companion MILCON
project. And it is very important that that military
construction funding be available.
So when we start to talk about reductions in appropriated
funds on the MILCON side, it can hurt our recapitalization of
our NAF facilities if those companion projects that are
required--putting in roads, putting in utilities, those kind of
things--if the funding for those are not available.
So in terms of being able to help us out, making sure that
funding for MILCON is there, we can get those companion
projects finished and be sure that we can complete our NAF, our
nonappropriated fund projects, on time.
Mr. West. Okay. General.
General Hendricks. I echo those comments exactly, as Mr.
Dillon said. That is going to be the short pole in the tent
coming forward. Over the last 5 years in AAFES, we have done
$1.5 billion in MILCON for the places we serve and whatnot.
I would like to thank the committee for the assistance on
lifestyle centers. Fort Bliss is just a win-win-win; win for
the soldiers and their families, win for the city of El Paso,
the jobs. We collect appropriate taxes there from the
concessionaires, and it is a win for the third-party tenants.
Many are leading their particular industries locally,
regionally, or nationally.
Now, we have two more pilots coming up, one at Lewis-
McChord, which is presently 95 percent designed. We look for a
fall-winter beginning construction there of 2012, completed in
the fall-winter timeframe of 2014. Very key for that big
community up there.
And the third pilot we have is the Joint Base San Antonio,
which is presently 65 percent in design, with a planned opening
date of 2016. We appreciate again the committee's support there
as we look at these types of things.
And from those pilots we will take things from there and
spread them across the other installations. But this has been a
great program in partnership with the public and the private
venture.
Mr. West. Thank you.
As we move, I want to talk about operations in combat
theaters. And I will tell you that there was no greater day
than when that first 5-ton truck rolled into Taji Air Base and
it had Pringles potato chips and cookies on it.
[Laughter.]
Mr. West. And the battalion commander was the first one to
get onto that truck.
[Laughter.]
Mr. West. But the thing that I want to ask you is, now that
we have ended those combat operations in Iraq, did we go back
and do an after-action review to look at the things that we
learned as far as, you know, that type of support of exchange
and services?
And what type of constraints did you see overall for your
system operating in two combat theaters of operation in Iraq
and Afghanistan? Any points on that?
General Hendricks. Sir, yes, sir. We have done an extensive
hot wash coming out of Iraq as we have swung from there into
Afghanistan. A lot of lessons learned that we have taken back
and we will formalize for when we go forward. The biggest
concern is, when we started down this thing folks in the
building were looking around at each other. It has been a while
since we had done one of these, and so we had to learn on the
fly.
So we are capturing all those. We are using the lessons
learned there. And again, we are already starting. As we look
at Afghanistan, our exit strategies, we have learned how to get
things in there where they need to be there very quickly;
various routes of entry through the logistics operations
centers [LOCs], depending on what is available and what is not.
And how do we take care of our soldiers there.
We had a site last week that had a direct hit. We were able
to get a TFE back in site, a tactical field exchange, within a
day. It is very important to us and those soldiers that they
know that what they need we can get there in short order.
And so yes, sir, to answer your question, we have learned a
lot. We are capturing that so that someday in the future when
we need that again we will be able to pull it off the shelf and
be able to review it.
Mr. West. Thank you, Mr. Chairman. I yield back.
Mr. Wilson. Thank you very much, Mr. West.
We now proceed to Congresswoman Madeleine Bordallo of Guam.
Ms. Bordallo. Thank you, Mr. Chairman. And to all our
witnesses, thank you for your testimonies this afternoon.
My first question is for Mr. Gordon. As you are aware, I
sponsored section 644 of the House-passed fiscal year 2013
NDAA. It requires the commissary and exchange oversight boards
to establish guidelines for identifying certain sustainable
products. It also requires the Department to develop a plan on
how it would implement greater procurement of sustainable
products.
I am very adamant that we can do much more to make the
commissary and exchange system more sustainable. Private
industries have taken the lead on these initiatives, but I fear
the exchange and the commissary system is falling behind.
So I would like to understand the Department's position on
this provision. What efforts, if any, are ongoing to procure
these products?
Mr. Nixon and also Mr. Gordy, I am also interested in
learning how the private sector can help to achieve whatever
goals DOD may set if my provision is included in the final
bill.
Mr. Gordon. Thanks very much for that, Congresswoman.
Sustainability is very important. I will let some of the
exchanges speak for themselves in terms of what they are doing.
But the Defense Department strives to be a very good steward of
our environment, first of all.
And in terms of the products that we sell and the goods and
services that we provide our military community members, we
believe that we were very thoughtful, first of all, in
considering the sustainability efforts, from the construction
of our plant and equipment to our operations and maintenance,
to the types of foodstuffs and services that we provide in our
commissaries and exchanges.
And I would like to defer to our commanders to talk about
some of that sustainability.
Mr. Jeu.
Mr. Jeu. Obviously, we support sustainability. I am going
to focus a little bit on some of the sustainability that is
going on within the commissary system because we are the heavy
user of energy. And, in fact, our refrigeration system consumes
so much energy it is quite important for us to be energy
efficient.
And so over the last 10 years, 20 years, we have made
concerted effort to reduce our energy consumption. In fact,
results show that our energy consumption is about 30 percent
less than commercial private sector.
So we are very proud of the achievement we have made. We
have a great recycling program within our commissaries. We
recycle over 53,000 tons of cardboard boxes. So those are some
of the things we do.
And as far as product that we sell, there is no industry
standard yet because in the grocery industry that is still in
development. But as soon as we have a more formed plan then,
obviously, we will add more and more sustainable environment
and friendly type of products.
Ms. Bordallo. Thank you.
Anybody else want to comment?
Mr. Nixon. Yes, ma'am. In reviewing the proposal that you
have submitted, one of the things we did was reach out to our
member companies. As a trade association, we have a lot of
member companies that have some really leading-edge technology
in this area.
And one of the things we thought is to put together an
industry forum that focused specifically on this issue. Some of
our member companies, like WESCO, deal in the construction and
supply industry. The other consumer packaged goods companies
have leading-edge technologies on what is the art of the
possible in sustainability and developing sustainable products.
So industry can play a very important role in working in
the partnership with the resale commands to put together a
solid program, ma'am.
Ms. Bordallo. Good. Thank you very much. I have a final
question here for Mr. Gordon regarding container deposit
programs.
I want to understand how the exchanges and the commissaries
in states or localities that have container deposit programs
comply with these laws, or those laws. Or if they don't comply,
what is the issue that hinders compliance?
For example, I believe that military installations in the
State of California and the State of Hawaii comply with the
container deposit programs. So how is this achieved, and how
can we ensure that we get compliance on Guam as well?
Mr. Gordon. Well, we can. We have to understand, especially
in places like Guam, what some of the issues are with respect
to container deposit programs. I will tell you that we are
working hard.
I know that you want us to submit a report on that. We look
forward to submitting that report. But I just want to let you
know that the Department is committed.
Ms. Bordallo. Very good.
And I yield back, Mr. Chairman.
Mr. Wilson. Thank you, Ms. Bordallo.
And we now will proceed to Congressman Austin Scott of
Georgia.
Mr. Scott. Thank you, Mr. Chairman. I will try to be brief.
But, Mr. Gordon, are you operating under the assumption
that sequestration happens?
Mr. Gordon. We are not. We are not planning for
sequestration at this time, Congressman.
Mr. Scott. With all due respect, and I didn't vote for it,
but if you are not planning for it at this time and the
President hasn't said he is not going to undo it, when do you
intend to start planning for it?
Mr. Gordon. Well, at this point in time, as Chairman Wilson
said, this Department is looking at a $487 billion cut over the
next 10 years. And with sequestration, with an additional $500
billion, that would be nearly $1 trillion and would be
devastating for the Department.
We are moving forward with our current plans in terms of
that $487 billion over 10 years.
Mr. Scott. Mr. Gordon, I agree with you on the devastating
cuts. But the fact of the matter is, sequestration is the law
of the land. And it concerns me when members of the Department
in leadership positions come before us and say that they are
operating under the assumption that it is not going to happen.
And I would just tell you that I think, with due respect,
that as long as it is the law of the land--and as long as there
are no plans from the executive branch, the President and, it
seems, from Secretary Panetta that he expects sequestration, or
certainly some form of it, to happen--how could the Department
possibly carry out sequestration without having a devastating
impact--especially to those men and women who are in the war
zones--if, here in mid-June, you are not even--and I am not
talking about you in particular, but the leadership of the
Department--is not even making plans to deal with what the
current law of the country is?
And I think the impact on our soldiers from not having a
plan is going to be devastating. And I think if you had a plan,
and showed America the end result of the plan, then we, those
of us who want to undo it, would get a lot further with getting
it undone. And so I would just encourage you to put together
the plan, all of you.
I mean, General, you didn't get to be a general without
following a plan. And I mean that very respectfully. You can't,
we can't, assume that this is not going to happen. We cannot
make the assumption that sequestration is not going to happen.
And I encourage you to put together a plan so that the
American public can see what the impact to its soldiers will
be. And then I think that we will have the help we need, those
of us who want to undo sequestration.
Thank you, and I yield the remainder of my time.
Mr. Wilson. Thank you very much, Mr. Scott. And I
appreciate in particular Congressman Scott being here. He is
undergoing a high element of flu, but that doesn't stop him
from getting around.
[Laughter.]
Mr. Wilson. And he has assured me that it is not contagious
to Congressman West, okay?
[Laughter.]
Mr. Wilson. And but, hey, he is immune. But we just
appreciate your dedication.
And I, on behalf of the subcommittee, would like to thank
all of you for being here today. Your commitment to our service
members--and it is so exciting for me to hear what Pat
mentioned about military families and employment
opportunities--this is just extraordinary. And for our
veterans, too.
And so if there is no further business, we shall be
adjourned.
[Whereupon, at 3:31 p.m., the subcommittee was adjourned.]
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A P P E N D I X
June 7, 2012
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
June 7, 2012
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING
June 7, 2012
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QUESTIONS SUBMITTED BY MR. WILSON
Mr. Wilson. Are there legislative or policy barriers that prevent
the military resale activities from fully supporting military patrons
and their communities and maximizing sales? If so, what are those
barriers and what are your recommendations for improving the
environment?
Admiral Bianchi. Armed Services Exchange Regulations restrict
certain types of products offered by the Exchange services thereby
restricting Exchanges from offering a wider variety of merchandise to
Service Members and their families that are already available to the
general public. The Navy Exchange Service Command's preference is to
eliminate all exchange merchandise restrictions.
Mr. Wilson. Are there legislative or policy barriers that prevent
the military resale activities from fully supporting military patrons
and their communities and maximizing sales? If so, what are those
barriers and what are your recommendations for improving the
environment?
Mr. Dillon. The Marine Corps' preference is to eliminate all
merchandise restrictions imposed by Congress. In the last decade,
Congress supported requests to eliminate most of the restrictions on
merchandise sold by Exchanges in the United States. The Exchanges
continue to seek removal of the remaining restrictions, which include
the size of diamonds and finished furniture selling space. The
authority to sell a wider variety of exchange merchandise improves our
capability to meet the needs of members and their families, and to
provide goods that are already available to the general public.
We would like to thank Congress, especially this Subcommittee, for
all of the support they have shown to the military resale system. We
appreciate your continued support to protect the Exchange and
Commissary benefit that is so vital to Service members and their
families.
Mr. Wilson. Are there legislative or policy barriers that prevent
the military resale activities from fully supporting military patrons
and their communities and maximizing sales? If so, what are those
barriers and what are your recommendations for improving the
environment?
Mr. Gordon. The Defense commissary system is limited by statute
(title 10 U.S.C. Sec. 2484) as to the products which can be sold. The
Department does not recommend any change to the current merchandise
restrictions on Commissaries.
The Department's preference is to eliminate all Exchange
merchandise restrictions imposed by Congress. In the last decade,
Congress supported the Department's requests to eliminate most of the
restrictions on merchandise sold by Exchanges in the United States. The
Exchanges continue to seek removal of the remaining restrictions, which
include the size of diamonds and the cost of jewelry; finished
furniture selling space and finished furniture, home furnishings, small
appliances, recreational boats and equipment, and power tools. The
authority to sell a wider variety of exchange merchandise improves our
capability to meet the needs of members and their families, and to
provide goods that are already available to the general public.
Mr. Wilson. Are there legislative or policy barriers that prevent
the military resale activities from fully supporting military patrons
and their communities and maximizing sales? If so, what are those
barriers and what are your recommendations for improving the
environment?
Mr. Gordy. In the view of the Armed Forces Marketing Council, there
exist both legislative and policy barriers that limit the extent to
which military patrons are supported by the resale systems and limit
sales.
The Armed Services Exchange Regulations is one such example,
particularly the merchandise restrictions on CONUS exchanges. Given the
dynamic shift to an Internet- and mobile-based economy, these
restrictions are antiquated and, in some cases, are irrelevant (i.e.,
projection televisions). The Council's view is that these limitations
should be eliminated. If not eliminated, then the cost limitations
should at the least be either increased automatically on an annual
basis to keep up with inflation or reviewed on an annual basis by the
Department of Defense and Congress to ensure the exchanges can provide
a wide selection of merchandise to meet the divergent needs of military
families while also ensuring that the regulations are reflective of an
ever-changing marketplace.
We are also concerned that there may exist some limitations on the
resale systems that would preclude them from actively and aggressively
participating in e- and m-commerce or would limit their adaptability in
a fast-changing marketplace to meet patron needs and demands. We are
aware and appreciative of efforts by the systems and DOD to take a look
at current policies, laws and regulations that hinder military resale's
participation in the cyber marketplace and seek remedies in order that
military resale remains relevant, especially with younger, tech-savvy
patrons. We look forward to their conclusions and working with them and
the Subcommittee to develop new policies and regulations that ensure
military resale can adapt to new technologies and reach the patron
through new and emerging technologies.
Mr. Wilson. Are there legislative or policy barriers that prevent
the military resale activities from fully supporting military patrons
and their communities and maximizing sales? If so, what are those
barriers and what are your recommendations for improving the
environment?
General Hendricks. Below are five issues that are currently or will
affect the service of AAFES to our military patrons:
Defense Business Systems over $1M: Section 901 of the National
Defense Authorization Act for Fiscal Year 2012, which includes the word
``non-appropriated,'' could be interpreted to include the military
exchanges and result in policy that is not conducive to efficient and
effective operations. Specifically, an interpretation that creates
policy bringing military exchange information technology initiatives
under the Investment Review Board certification and Defense Business
Systems Management Committee process would have an adverse impact on
our ability to change IT systems to respond to changing customer needs
or industry standards to the detriment of service members. Military
exchanges estimate losses in revenues of $4.9 million each month
execution of information technology initiatives are delayed through
increased oversight, which would reduce dividends available to support
morale, welfare and recreation programs.
We believe AAFES annual IT certification process is sufficient to
confirm NAFI business systems conform to standards contained in DOD IT
Standards Registry (DISR) and also provides a process to address
deviations or recommendations needed.
Services Contract Act: Amend the Service Contract Act of 1965 to
exclude contracts for retail services for members of the Armed Forces.
The Service Contract Act provides a minimum wage base for service
employees on Federal service contracts. The law requires that persons
employed to provide services under a Federal service contract be paid
at prevailing wage rates determined by the Department of Labor.
An amendment would exclude service contracts entered into by the
United States to provide retail services to members of the Armed
Forces. These are unique contracts to which the United States is a
party, but not a beneficiary. The beneficiaries of the services are
Soldiers, Sailors, Airmen and Marines. While protecting the service
employee, application of the Service Contract Act to these contracts
artificially increases the costs of services under the contract, a cost
that is not borne by the Government, but rather by the individual
warfighter who actually uses the service. In some cases, it is
difficult to find businesses that will operate on the base, which may
deny the full range of services offered to the military customer. This
amendment would simply put these services on par with other public
sector retail service operations, which are not required to pay similar
minimum wages to their service employees.
New Car Sales: Clarify the current DOD policy to authorize new cars
assembled in North America (including Mexico) by allowing exchanges to
take orders for North American manufactured U.S. name-plate
automobiles; North American manufactured foreign name-plated vehicles
with at least 75 percent U.S. or Canadian content; and motorcycles.
North America is defined as the continental United States, the District
of Columbia, Canada, and Mexico.''
ASER Restrictions: AAFES appreciates the support of the House Armed
Services Committee/Senate Armed Services Committee in recent years to
continue to ease merchandise restrictions. The committee's recent
efforts to relax Armed Services Exchange Regulation (ASER) restrictions
on TVs, furniture, and diamonds allows AAFES the authority to sell a
wider variety of exchange merchandise, which improves our capability to
meet the needs of service members and their families.
AAFES will continue to advocate for the relaxation of all
merchandise restrictions that effectively deny military families the
ability to buy a more extensive range of products and services from
their exchange. Another proposal might be to tie merchandise cost
limits to inflation rates which would automatically adjustment to meet
the changing needs of the market. In short, we want to minimize the
barriers that keep military families from making major purchases
utilizing the low prices and the favorable credit terms that the
exchange can deliver.
Advertising Restrictions: Presently, advertising authority is
limited to those products and services the military exchanges are
authorized to sell. Expansion of military exchange advertising
authority would support efforts to raise awareness of quality of life
benefits and enhance exchange dividends through further amortization of
marketing costs. AAFES proposes that authority be extended to pay
advertising for military benevolent organizations, military community
cooperatives and other commercial organizations that offer products and
services that would be of benefit to military Service Members. Of
course any such advertisements would be in accordance with Joint Ethics
Regulation, DOD Directive 5500.07-R, which requires advertisements for
products and services not authorized for exchange resale to include a
disclaimer that it does not constitute Department of Defense, U.S.
Armed Services, or military exchange endorsement.
Mr. Wilson. Are there legislative or policy barriers that prevent
the military resale activities from fully supporting military patrons
and their communities and maximizing sales? If so, what are those
barriers and what are your recommendations for improving the
environment?
Mr. Jeu. The Defense commissary system is limited by statute (title
10 U.S.C. Sec. 2484) as to the products which can be sold. The
Department does not recommend any change to the current merchandise
restrictions on Commissaries.
Mr. Wilson. Are there legislative or policy barriers that prevent
the military resale activities from fully supporting military patrons
and their communities and maximizing sales? If so, what are those
barriers and what are your recommendations for improving the
environment?
Mr. Nixon. The American Logistics Association appreciates the
support of the House Armed Services Committee in fostering an
environment wherein resale programs can optimize their ability to
support our valued patrons and looks forward to working with the
Committee in ensuring a responsive and efficient business environment.
There are several key market and budgetary dynamics that prompt a
re-examination of the restrictions that are placed on resale programs.
These include:
Effects of increased deployment on military families and
the need for on-base retail services to be more responsive.
Increased reliance on the National Guard and Reserve that
drives changing product awareness.
Exchanges offer favorable credit terms that are sensitive
to the financial needs of military patrons and help insulate military
personnel from high-interest off-base merchandisers.
Need for resale agencies to continue to optimize
efficiency in operations in order to minimize reliance on
appropriations and keep prices low for patrons.
The need for on-base retailers to be free from
restriction in order to rapidly respond to evolving consumer demand.
Market dynamics including the proliferation of mass-
merchandisers, specialty big-box retailers.
Increasing electronic commerce options, communications
evolution, peer-to-peer marketing though social media, and e-commerce
rapid supply chain response and delivery.
Instant price and product comparison technology.
And a more well-paid, better educated, brand-conscious,
sophisticated, mobile, tech savvy, and discerning military shopper
demographic.
ASER Restrictions
The ALA appreciates the support of the Armed Services Committees of
the House and Senate to relax Armed Services Exchange Regulation
restrictions. We support removing all remaining restrictions on the
sale of merchandise in exchanges.
Advertising Restrictions
The ALA also supports a re-examination and change to the current
policies on advertising. Currently, there are limitations on
dissemination of sales prices in media that can be removed from the
store. While we understand the spirit and intent of this restriction,
the Internet now allows market segmentation where only eligible
military shoppers can be isolated and informed. This electronic and
targeted media should be allowed to inform eligible patrons of pricing.
A family of four can save nearly $7,000.00 per year by shopping at
exchanges and commissaries with savings in commissaries in the range of
30 to 50 percent and exchange savings above 20 percent. These benefits
are the only benefits in the Department of Defense where there is a
lower cost per user as volume increases. Therefore, it benefits the
overall compensation package when more shoppers are aware of these
benefits and use them. We therefore encourage a re-examination of the
price advertising restriction to allow prices to be disseminated to
eligible patrons with targeted print or electronic media.
We are aware of efforts by the resale agencies to review the policy
on promotion of products and will work with these agencies to ensure
patrons are aware of all that resale agencies have to offer.
Service Contract Act Application
The ALA also supports a re-examination of the application of the
Service Contract Act to retail services for military patrons.
Application of this Act artificially increases costs of services under
the contact--costs that must be passed on to military patrons.
New Car Sales
ALA also supports a correction to the current policy to authorize
new cars assembled in North America and allow exchanges to respond to
the service members' needs by being permitted to sell North American
assembled cars, motorcycles or other vehicles.
IT Modernization
Further, ALA supports exclusion of nonappropriated fund information
technology systems from the requirements of Section 901 of the Fiscal
Year 2012 National Defense Authorization Act. Including NAF systems
under this Act unnecessarily impedes the rapid execution of IT systems
that can make exchanges and MWR programs more efficient and responsive
to patrons. This would not effect the DOD's efforts to control
duplicative and wasteful IT expenditures on enterprise wide systems for
human resources, finance, and acquisition which appear to be the
problem that Section 901 sought to remedy.
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