The Biggest Retailer You’ve Never Heard Of
With six pilot retail locations planned, the Army and Air Force Exchange Service (AAFES) is opening on-site lifestyle centers and breathing new life into military retail.
Stephen O’Kane

AAFES provides retail shopping opportunities for members of the military and their families.

The Army and Air Force Exchange Service (AAFES) was established more than 111 years ago to provide the military, their spouses and their families with opportunities to improve their quality of life. Offering exceptional retail opportunities and important day-to-day services, AAFES continues to expand its horizons, tackle new challenges and create convenient ways for its members to celebrate their freedoms.

AAFES is an agency of the United States Department of Defense and operates wherever there is an Army or an Air Force base. The organization functions by running retail stores on military installations, but also provides necessary services such as barber and beauty shops, and laundry and dry cleaning services. AAFES is also undertaking a major program to provide military members with the latest technology in the telecommunications field whereby they can offer wireless phone, Internet access and cable television access on the installations. AAFES believes that creating these opportunities for members of the military and their families not only provides those services that can be obtained off-base, but also is an excellent way to comfort those soldiers who are away from their homes, as well as the families who are without their deployed soldiers.

“Taking care of the military member, their families and military retirees on Army and Air Force installations all around the world is our mission,” says Joseph Giuffreda, vice president, Strategic Partnership Directorate. “Our slogan, which we are very proud of, is, ‘We go where you go.’”

With 60 stores in contingency, or war-fighting, locations, including 30 in Iraq, and 148 big box stores around the world, AAFES is truly living up to its motto. Providing everything from video rental stores to bookstores to convenience stores, the agency is committed to giving deployed soldiers the opportunities and comforts of home.

The agency is 98 percent funded by sales generated from AAFES products and services. The other 2 percent is tax dollars, which primarily constitutes the cost of shipping U.S. goods overseas, as well as military salaries.

But operating retail stores is not the entire picture. AAFES is authorized to manufacture goods abroad as well. “Overseas, we operate food plants that do bread, ice cream, water and similar goods,” says Giuffreda. “And it is name brand product. In Europe we make Wonder bread, Baskin Robbins Ice Cream and Culligan water, so that we are not shipping the goods overseas, but we are actually making it in the location.”

In addition to developing and operating retail stores and manufacturing goods, AAFES is a strong financial support to the Army and the Air Force — all of the earnings are put back into the military. The agency uses its money for two purposes: to reinvest in new products and services, and to provide a dividend to the morale, welfare and recreation organizations (MWR). A portion of the money is used for building new stores, creating new retail opportunities and other important needs like upgrading the IT system at its headquarters. Money also is provided to MWR programs and, therefore, used to fund gyms, libraries, days care centers, golf courses, auto hobby shops, pools, intramural programs, sports programs and basically anything that will improve the quality of life for military personnel and their families.

Throughout the world, there are approximately 12 million eligible military customers that are broken down into four categories — active duty Army and Air Force, which makes up 27 percent; military retirees, which account for 43 percent; guard and reserve, approximately 25 percent; and Department of Defense civilians, which make up five percent. More than 45,000 people are employed by AAFES, and nearly 25 percent of their sales associates are family members of the military, proving yet another way the agency supports its members.

AAFES is a retailer that produces billions of dollars in sales each year. “In 2005 we did $9.6 billion in sales,” says Giuffreda. “About $8.5 billion of that was from direct operations, and the other billion or so is what we call a concession model. In other words, it is a contract we have with someone to be a barber or with someone to run a flower shop. We are a significant retailer, and a lot of people do not recognize the impact of this.”

In 2005, AAFES’ earnings totaled $325 million. That means in one year AAFES was able to put more than $300 million from retail sales back into the military, with 65 percent going to the Army and the Air Force, and 35 percent used to reinvest in new stores.

“Of the military personnel that work on the installation, only 25 percent live on the installation, so about 75 percent of the military live somewhere else,” says Giuffreda. “So we are competing. Yes, they are there during the day when they work, but when they go home at night and on weekends, we are competing with them to come back and shop with us.”

AAFES is currently in the process of creating six pilot retail locations on military bases throughout the country. The hope is that AAFES can bring to the installation all the shops, and extras, that one might find “outside the gate.” The new model being discussed is the type and scope of a traditional lifestyle center much the same as is found in the commercial marketplace. The centers will comprise two anchors; one at each end of the development — AAFES will be positioned at one end and the grocery, or commissary, at the other. Between the two anchors will be a Main Street-style center featuring complementary retailers and tenants that are found in lifestyle centers throughout the country. Typical tenants will include a first-run movie theater, a state of the art fitness center, name brand apparel, books, sit-down restaurants and various service tenants. This is the first time such a project has been undertaken within the confines of a military installation and represents AAFES’ devotion to providing the best it can put forth for our military members.

The six pilot centers will be located at Fort Bliss in El Paso, Texas; Fort Carson in Colorado Springs, Colorado; Fort Sam Houston in San Antonio, Texas; Eglin Air Force Base in Fort Walton Beach, Florida; Fort Dix/McGuire Air Force Base in New Jersey; and Fort Belvoir in Fairfax, Virginia.

All of the locations are still in the development stage, but AAFES is quickly taking charge and getting involved with the some of the country’s most successful companies. Cypress Equities, a division of The Staubach Company, will serve as a development partner for the Fort Bliss project.

“Working closely to review the potential market with AAFES, we have been impressed by the large disposable incomes available to military families.  It translates into tremendous sales volumes achieved by the existing retailers located on the base. The recent realignment of the military onto consolidated facilities has created a large untapped consumer market. We are excited at the opportunity to work closely with AAFES and target this market with community lifestyle retail which provides the soldiers and their families a unique sense of place on the base” says Todd Minnis, director of acquisitions for Cypress.” 

Kate Sheehy, senior vice president partner and client relations for General Growth Properties understands the importance of the Ft. Dix/McGuire center. “We are delighted to work with AAFES to provide expanded retail and entertainment offerings to our military personnel and their families,” Sheehy says. “We welcome the opportunity to introduce this new venue to the retailer community.” 

Mark DeRose, CEO of Colorado-based developer ServiceStar Development Company, is the development partner for AAFES’ lifestyle center at Ft. Carson in Colorado Springs. “ServiceStar Development Company is genuinely excited by its strategic partnership with AAFES for the developmenet of the Fort Carson Lifestyle Village,” says   DeRose. “The Fort Carson trade area, with a current ‘captive population’ of over 106,000 people that is expected to increase to 142,000 within the next five years, contains not only active duty military personnel and their family members, but also military retirees, their families and a variety of civilian employees. This diverse, previously untapped population offers real opportunity for retailers to expand into a new and attractive market through negotiation with a single private developer.  And this same opportunity for retail expansion exists at the other military installations throughout the country that are part of the AAFES community development program.”

Staubach will be handling the leasing efforts at Ft. Bliss, and CB Richard Ellis will be doing the leasing for Ft. Carson. Both of these projects will be represented at the upcoming ICSC Conference in Las Vegas.

The size of the developments has not yet been finalized, as the projects will be specialized according to their respective markets, but initial talks mention approximately 250,000 square feet of gross leaseable area for lifestyle retailer space, in addition to approximately 200,000 square feet dedicated solely to AAFES.

“AAFES is opening up and giving its military customers more choice, more convenience and the amenities of the lifestyle center that has fountains, outdoor furniture, quality restaurants and entertainment,” says Giuffreda. “There is a tremendous, patriotic story to be told as well, and that is taking care of the military, their families and their spouses that are by themselves in America when the other member is off in places like Iraq for a year doing what they have to do. If we can offer all the comfort and amenities right there where members live and play, and make it easier for the spouse left at home, we are successful.”


©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.