Army _ Air Force Exchange Service

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					     Army & Air Force
     Exchange Service
         Annual Report 2008




       The AAFES Stor y :
      For nearly 114 years,
‘serving the best customers
               in the world’
                The
                AAFES
                Stor y

      For nearly 114, AAFES

      has provided Soldiers,

     Airmen, National Guard

      members, Reservists,

       Families and retirees

       throughout the world

  with exceptional services

    and brand-name goods

      at competitive prices.

    T h e A A F E S S t o r y : Ta b l e o f C o n t e n t s
1 — Commander Maj.                                                      10 — AAFES’ credit
Gen. Keith Thurgood:                                                    cards, CD for the
AAFES bouyed in                                                         troops, Gifts from the
economic storm                                                          Homefront and more

2 — 2008: A Year of                                                     11 — Our family of
Many ‘Firsts’                                                           restaurants continues
3 — We served troops                                                    to grow
helping Hurricane Ike
                                                                        12 — We reach out to
relief effort
                                                                        the Guard, Reserves,
4 — AAFES by the                                                        and Soldiers in isolated
numbers                                                                 camps

5 — Chief Operating                                                     13 — Diversity is a
Officer Michael Howard:                                                 good business strategy
‘The best customers in
the world’ are the                                                      18 – A new way to
reasons we exist                   7-8 — We have ‘sustainability’ in    serve shoppers:
                                   the bag                              Freedom Crossing
6 — Leverging technology: How we
streamline and cut costs           9 — We’re change our thinking, not   20 – Audited financials
                                   our oil
                                    Commander’s Column
                                    The AAFES Story: strategic goals, right-sized
                                    inventories, profitable sales, supply-chain efficiency




                                    A
                                                     AFES is clearly                 that provides us with industry-best
                                                     operating in                    allocation, forecasting, merchandising,
                                                     challenging times in            pricing, purchasing, replenishment and
                                                     which the national              inventory management practices.
                                                     economy’s dramatic                    • Introducing 36 new items under
                                    downturn devastated the retail                   the 593-product Exchange Select exclusive
                                    landscape and resulted in decreased sales        brand to help budget-conscious shoppers
                                    and sinking consumer confidence.                 save 20 to 50 percent on goods comparable
                                                                                     in quality to national brands.
                                           In this annual report, however, you’ll
                                                                                           • Increasing the percentage of Energy-
                                    read how our remarkable reputation,
                                                                                     Star appliances to nearly 35 percent of our
                                    excellent credit rating, and deliberate
We remain a financially                                                              total stock of appliances and enacting other
                                    actions by our 43,000+ forward-thinking
stable, global multi-channel        associates buoyed AAFES during this
                                                                                     sustainability measures (See Page 7).
                                                                                           • Creating an integrated business
retailer serving 12.2 million       economic storm. We accomplished these
                                                                                     model—Operation Be Fit—to promote
                                    goals by:
active-duty, Reserve,                                                                health and wellness solutions for customers
                                           • Increasing revenues to nearly $9
National Guard, Family                                                               and associates that will transform outcomes
                                    billion, with concessions income—about
                                                                                     and reduce healthcare costs.
members and retirees in 30+         two percent higher than the previous year.
                                                                                           • Continuing to provide expeditionary
                                           • Boosting earnings by 2 percent to
countries, five U.S. territories                                                     and mission support capabilities to our
                                    $435 million, subject to dividends.
and 50 states.                                                                       troops at home and abroad.
                                           • Providing dividends of $264.5
                                                                                           As you can see, we remain a financially
                                    million to Morale, Welfare and Recreation
                                                                                     stable, global multi-channel retailer that
                                    programs for the troops.
                                                                                     serves 12.2 million active-duty, Reserve,
      AAFES Factoid                        • Delivering more than $150 million
                                                                                     National Guard, Family members, and
                                    in supply-chain productivity.
                                                                                     retirees in 30-plus countries, five U.S.
                                           • Expanding our award-winning
AAFES is a military command                                                          territories and 50 states. We operate more
                                    Web site, www.aafes.com, to more than 18
                                                                                     than 3,100 facilities; 1,765 restaurants with
with a retail mission carried out   million items.
                                                                                     familiar names like Burger King, Starbucks,
                                           • Managing a $1.2 billion, five-
by 43,000+ military and civilian    year program to build unique shopping
                                                                                     Subway and Taco Bell; and more than 5,100
                                                                                     concessions. We continue providing a “taste
associates and managers. A          destinations and address the Department of
                                    Defense’s military transformation initiatives.   See “Commander’s Column,” Page 14
Board of Directors comprised        From 2005 to 2008, we completed 50
                                    projects valued at $442 million, and 10
of civilians and senior Army and
                                    projects at $173 million are now under
Air Force military leaders          construction.
                                           • Improving customer and associate
oversees operations.
                                    satisfaction scores by 200 and 400 basis
                                    points respectively.
                                           • Receiving local and national
                                    accolades for our groundbreaking employee
                                    and supplier diversity, restaurant operations,
                  The               and sales (See Pages 11 and 13).
                  AAFES                    • Completing implementation of
                  Stor y            Oracle Retail, the sophisticated technology

                                                          1
                                            2008: A year of
                      The
                      AAFES                 many ‘firsts’
                      Stor y                Historic collaborations give customers even
                                            greater selections for every room of their homes



                                            W
                                                               e give our valued             sensibility,” Ana says. “The products are the
                                                               shoppers plenty of            most authentic expressions of the Martha
 The products are                                              reasons to make us            brand.”
                                                               their “first choice,”
 inspired by Martha’s                                                                        Power in the PowerZones
                                            whether they walk through the doors
 favorite things, mixing the                of our worldwide brick-and-mortar                      Additionally, Ana’s team boosted the
                                            exchanges or visit our award-winning             number of Apple-authorized dealers from
 best of the past with
                                            Web site, www.aafes.com.                         25 stores to 69, resulting in sales of $31
 innovative styling                               In 2008, AAFES, America’s 41st             million, up from $16 million the previous
                                            largest retailer, scored several “firsts” in     year.
 and modern sensibility.
                                            product deals for Soldiers, Airmen, National           What’s more, 23 PowerZone
                                            Guard members, Reservists, Family                electronics departments underwent strategic,
                                            members and military retirees, and they          “consumer friendly” redesigning and
                                                      have carried over to this year, “The   rebranding, as well as product repositioning
                                                      Year of the Customer.”                 to increase add-on sales. High-tech signs
                                                                                             now entice shoppers to visit the “endless
                                                     Bassett, Simply Perfect                 aisles” of electronic gadgetry on www.
                                                                                             aafes.com. Collaborations with valued
                                                         In 2008, AAFES became the
                                                                                             vendors Sony, Samsung, Panasonic, JVC and
                                                  first retailer that furniture giant
                                                                                             Hewlett-Packard on interactive, informative
                                                  Bassett allowed to use its name for
                                                                                             and solutions-based displays created “WOW
                                                  our private-label Simply Perfect
                                                                                             factors” in the minds of customers.
                                                  as part of a global strategy to
                                                                                                    The initiatives hiked sales by $3
                                                  provide greater value on furniture,
                                                                                             million for the last three months of 2008.
                                                  home décor, dinnerware and
                                                  linens. Thanks to Vice President           Softlines’ major wins
                                                  Ana Middleton’s Hardlines team,
                                                   Simply Perfect sales hit nearly $29              Ana’s team also expanded our
AAFES sales and marketing experts
                                                   million, 39 percent higher than in        successful “electronic roadshows” to place
entered into a historic partnership with
Martha Stewart, above, to offer her                2007.                                     name-brand electronics in smaller stores
exclusive product lines throughout the                    In 2008, the Sales                 that don’t normally carry the breadth of
world.                                                                                       assortments found in larger exchanges.
                                                   Directorate’s Hardlines team
                                        entered into historic partnerships to                       Meanwhile, our Softlines division,
                                        offer Macy’s selection of Martha Stewart             headed by Vice President Alicia Scott,
                                        products in 59 of our stores around the              scored major wins in 2008, including more
                                        world. In just November and December,                than $23 million in revenue from the sale
                                        sales of Martha Stewart Collection                   of Coach handbags and accessories and $16
                                        bed and bath textiles, housewares,                   million in sales of Under Armour athletic
                                        dinnerware, glassware, cookware, home                wear.
                                        décor and gifts hit $1.3 million.                           This year, Softlines rolled out nine
                                              “The products are inspired by Martha’s         more Coach Concept shops, which will grow
                                        favorite things, mixing the best of the              sales for the exclusive brand to more than
                                        past with innovative styling and modern              See “Coach, Macy’s links,” Page 15

                                                                  2
 Going where they go
 Associates leave safety of own homes to                                                               The
 serve troops in hurricane recovery efforts                                                          AAFES
                                                                                                      Stor y
       “We’re here and ready to assist in the      from our San Antonio
 rebuilding process with a full assortment of      exchanges served
 generators, chain saws and lots and lots of bug   7,000 National Guard
 spray. Whatever is needed, we’re going to do      members helping
 everything we can to get the resources needed     communities recover                          “All we want to do is make life
 to complete the difficult task of getting this    from Ike’s wrath.
 community back on its feet.”                           To grasp the                            a little more
            —Theresa Palu, store manager,          enormity of the mission, consider AAFES      comfortable
                                     Camp Mabry    Commander Maj. Gen. Keith Thurgood’s
                                                   column from the Exchange Post, the           for those




 T
                                                   company’s global internal print and online
                                                                                                working to
             hroughout our 113-year                magazine:
             history, our associates                                                            bring life back


                                                   W
             have voluntarily left their                         hen Hurricane Ike hit the
                                                                                                to normal for
             Families and comforts                               Texas Gulf Coast, millions
 of home to deploy around the world                              of people were evacuated       the residents here.”
 to serve America’s Fighting Heroes.               to safer places further inland. A few
 We take seriously our motto, “We Go               days later, many of them, especially in      —John Burk, team leader
 Where You Go”—and that also means                 Galveston, returned to their homes,
 deploying into the face of forest fires           only to find piles of rubble and
 and natural disasters.                            memories.
                                                         To help the cities,
       In September 2008, Hurricane Ike,
                                                   towns and people recover
 the third most destructive hurricane to
 ever make landfall in the United States,          and get back to normal,
 slammed into the Texas Gulf Coast,                7,500 National Guard
 bringing Houston—the country’s fifth              members and other troops
 largest city—to a standstill and destroying       deployed to the Houston
                                                   area. Associates from
 much of Galveston Island.
                                                   Texas exchanges jumped
       From one of our mobile field
                                                   into action the day after
 exchanges for at least two weeks, associates
                                                   the hurricane to set up
                                                   and operate a 53-foot
                                                   mobile field exchange
                                                   at Ellington Field in
                                                   Houston.
                                                                                                    Dedicated associates from our
                                                   From Houston to Galveston                    Texas exchanges left the safety and
                                                                                                comfort of their homes and families
                                                        The trailer, stocked with merchandise     to staff serve troops helping with
                                                   from the Ellington exchange, opened to                Hurricane Ike relief efforts.
                                                   support local troops, members of the Air,
                                                   Army and Texas National Guards, Marine
                                                   and Navy Reserves, and the Coast Guard,
Local residents looking for emer-
gency products file in and out of the
AAFES mobile field exchange.                       See “Hurricane Ike,” Page 16


                                                                        3
     The AAFES Story by the Numbers
3,100+ — Number of retail outlets at Army and Air
Force installations across the world in 50 U.S. states,
more than 30 countries and five U.S. territories.

12.2 million — Number of active-duty troops,
Reserves, National Guard members, retirees and
Family members served by AAFES.

43,000+ — The number of AAFES associates around
the world, including nearly 11,000 spouses and
children of Soldiers and Airmen.

90 and 232 — The number of AAFES exchanges
and brand-name restaurants in Iraq, Afghanistan and
throughout the Middle East.

72— Number of AAFES phone centers in the Middle
East and the Balkans for troops to call home.
                                                                        Service members in Afghanistan
2,065 — Number of restaurants operated by AAFES
throughout the world.

430+ — Number of AAFES associates deployed to the             $264.5 million — The dividend for 2008.
Middle East and other places throughout the world.
                                                              20,926 and $1.6 million — Number and amount of
4,500+ — Number of AAFES associates who have                  phone cards bought in 2008 for the “Help our Troops
deployed since the start of the war on terror.                Call Home” program.

$2.4 billion+ — Estimated total dividends contributed         2,700 and $6.4 billion — The number of “vendor part-
by AAFES to military Morale, Welfare and Recreation           ners,” many with household names, and their annual
programs during the past 10 years.                            sales with AAFES.

                                                              18 million — Number of items offered on AAFES’ Web
                                                              site, www.aafes.com.

                                                              20% — The average savings a customer receives at
                                                              AAFES compared to the competition, not counting the
                                                              no sales tax benefit!

                                                              4 million-plus — The number of meals served to chil-
                                                              dren each year by AAFES at 90 Department of Defense
                                                              schools in nine countries on a break-even basis.

                                                              $1.2 billion — The total investment of new construc-
                                                              tion for AAFES shopping centers over the past five
                                                              years around the world.

                                                              500+ — Number of items in the “Click to Brick”
                                                              program, where shoppers who prefer the ease and
                                                              comfort of Internet shopping can have their products
                                                              delivered to nearby exchanges in the U.S. for pickup,
   Honoring our fighting heroes with a cookout at             thus saving shipping costs.
                Camp Stryker, Iraq


                                                          4
AAFES to 12.2 million shoppers:
‘We have value for you!’
                                                                                                              The
‘The best customers in the world’ is                                                                        AAFES
                                                                                                             Stor y
the reason we exist



I
         n these perilous economic times          visibility across all demographic segments
         when shoppers are looking                in the military community to communicate                              Today, the typical
         to stretch their dollars and             our value. For instance, our customers are                   customer is no longer the
         customers are coming back to             “shareholders” who invest in AAFES by
                                                                                                                          20-year, career-
         the exchanges, we are seizing            buying our products and services. In turn,
                                                                                                                oriented military member
the opportunity to say, “Welcome! We              AAFES sends 60 percent of its profits as
have value for you!”                              “dividends” to the troops for Morale, Welfare                         whose use of our
                                                  and Recreation programs.                                    services was a daily part of
      We have christened 2009 as the “Year
of the Customer” as our associates focus on
                                                        We also differentiate ourselves from                                  military life.
                                                  the pack by being the world’s only retailer
providing the best service and best deals
                                                  to serve our Warriors
possible.
                                                  fighting the Global War
      Many of them already are like Pam
                                                  on Terror.
Thompson, one of our jewelry buyers.
Customers compliment her continuously for         Outstanding work,
how she cares for them, including a woman         smiles
who told us that thanks to Pam’s service, she
                                                        Late last year, I
purchased an expensive and beautiful ring
                                                  returned from Kuwait,
from AAFES and hasn’t taken it off since.
                                                  Afghanistan and Qatar,
Pam went above and beyond to ensure the
                                                  where our volunteer
ring got to the customer and was exactly
                                                  associates, with smiles
what she wanted—that is the foundation of
                                                  on their faces, provided
the “Year of the Customer.”
                                                  products and services
A different customer                              that vastly improved the
                                                  quality of life for our
      When we think about these customers,        fighting heroes. Truly, I
Mat Dromey, our chief marketing officer, says     couldn’t be more proud of them.
that we face a very different shopper today
                                                                                                                     Chief Operating Officer
than several years ago. Today, the typical        A global organization
customer is no longer the 20-year, career-
                                                         Being a global organization
oriented military member whose use of our                                                                Earnings, 2006-2008
                                                  with a unique mission to “go where
services was a daily part of military life. Our
                                                  you go,” AAFES is positioned to
challenge is to educate today’s customers
                                                  live up to those words, whether the
about who we are, what we do and how
                                                  troops are fighting our enemies in the
important AAFES is to their installations.
                                                  Middle East, forest fires in the United
      We already are reaching out to them.
                                                  States or building medical clinics in
In a marketing tabloid aimed at the critical
                                                  Peru.
demographic, 18- to 24-year-old male
                                                         “The best customers in the
Soldiers and Airmen, Mat’s team promoted
                                                  world” is the reason we exist. With
our low prices and no-tax value on our wide
                                                  determination and hard work from
selection of electronics, such as Wii video-                                                      All figures in millions.
                                                  our 43,000+ associates, our customers
game systems.
                                                  will continue to view AAFES as their
      In 2009, through our “Rediscover the
                                                  “first choice” for exceptional service, low
Value of AAFES” program, we will boost our
                                                  prices and great merchandise.
                                                                        5
                                           Leveraging Technology
                                           Investing millions to get the right products
                      The
                      AAFES                to the right people at the right places



                                           A
                      Stor y
                                                         lthough we’ve served                master trainers” in 2008 began training
                                                         America’s fighting                  all sales associates on how to use the
                                                         heroes for more than                technology.
          Hunter Cole and                                113 years, our forward-                    As a result, we enhanced our ability
                                           looking managers and associates keenly            to establish data-driven pricing strategies
          John Englehart are               anticipate future challenges and create           and manage promotions and clearance
          directing the most               solutions so we continue getting the              pricing programs more efficiently. During
                                           right products to the right places at the         the next two years, we will improve
          expensive tech project           right times.                                      replenishment processes so that our Sales
                                                                                             Directorate can create critical seasonal and
          in AAFES’ 113-year                     We have invested millions of dollars
                                                                                             fashion allocation plans targeted for the
                                           in sophisticated technologies to streamline
          history.                         our sales, logistics and procurement
                                                                                             right stores with the right inventory levels
                                                                                             of top-selling products and sizes.
                                           divisions so we can slash operating costs,
                                           enhance productivity and get any kinks out        A warehouse ‘symphony’
                                           of our supply chains.
For every dollar we save in this                 For every dollar we save in this                  But Oracle Retail is just one piece
integrated network of suppliers, buyers,   integrated network of suppliers, buyers,          of the tech strategy that will help us serve
                                           distribution centers and stores, our              our valued customers well into the future.
distribution centers and stores, our
                                           “dividends” climb proportionately for             A $31 million warehouse management
“dividends” climb proportionately                                                            system, which is scheduled for 2009 at our
                                           Morale, Welfare and Recreation programs
for Morale, Welfare and Recreation         for America’s fighting heroes and their           Waco (Texas) Distribution Center, gives
programs for America’s fighting heroes     Families—one of the major reasons we’re           logistics experts access to their industry’s
                                           here in the first place.                          best practices.
and their Families—one of the major                                                                Once the system from RedPrairie of
reasons we’re here.                        Costliest project to date                         Waukesha, Wisc., hits the rest of AAFES’
                                                                                             distribution centers around the world by
                                                  In February 2008, we completed the
                                                                                             mid-2011, we will gain greater inventory
                                           costliest technology project—the $177
                                                                                             control over nearly 5 million square feet of
                                           million Oracle Retail system to gain the
                                                                                             warehouse space and save more than $13
                                           retail industry’s best allocation, forecasting,
                                                                                             million a year, said George Carpenter, the
                                           merchandising, pricing, purchasing,
                                                                                             project’s director.
                                           replenishment and inventory management
                                                                                                    “We can see it, ship it, process it
                                           practices. This technology could boost
                                                                                             and put it away in the most efficient way
                                           AAFES earnings by $84.6 million by 2012
                                                                                             possible,” he says. “We’re in control over
                                           through increased sales, improved profit
                                                                                             what’s coming in the door and what are we
                                           margins, reduced inventories and lower
                                                                                             going to do with it.”
                                           operating costs.
                                                                                                   Like a conductor leading a symphony,
                                                  Toys “R” Us, Walgreens, Office
                                                                                             RedPrairie’s technology orchestrates all
A $31 million warehouse                    Depot, Nordstrom, Pier 1 Imports, Barnes
                                                                                             movement of goods and people throughout
management system is giving                & Noble, Borders, Radio Shack, Wal-
AAFES logistics experts access                                                               the distribution centers by essentially
                                           Mart, and 15 of the top 16 food and drug
to the industry’s best practices at                                                          thinking of the best placement and routes
                                           retailers also use Oracle Retail.
our distribution centers around the               Under guidance from Sales Vice
                                                                                             for everyone and everything. The system
world.                                                                                       tracks our tractor-trailer trucks from the
                                           President Hunter Cole and Strategic
                                           Business Architect John Englehart, “retail        See “Leveraging,” next page

                                                                 6
Sustainability
We have environmental change ‘in the bag’
                                                                                                             The
Sustainability—forms of progress that meet the             Our Energy Management Team,                     AAFES
needs of the present without compromising the        headed by Ann Scott, has launched many                 Stor y
ability of future generations to meet their needs.   initiatives during the past two years to
                                                     reduce energy, water, waste and fossil fuels,
                      - World Commission
          on Environment and Development             while we construct earth-friendly buildings
                                                     and buy and sell environmentally-friendly



C
       leaning up the environment                    goods and services that our customers desire.
       begins at home, and “home” for                      For example, in June 2008, we
       us are the military communities               introduced throughout the world reusable
where our valued customers live, serve               bags made of non-woven polypropylene
and shop.                                            mesh and capable of carrying up to 35
                                                     pounds. In 2008, shoppers bought more           Shoppers
      As we seek to make the “homes” we                                                              bought more
                                                     than 83,000 bags.
share better places to live, we incorporated                                                         than 83,000
                                                           To help our customers throughout the      of our earth-
sustainability as one of five AAFES corporate        world slash their utility bills, we sold both   friendly bags
strategies for winning the future and                online and in our stores 63 different Energy    in 2008.
reducing our carbon footprint.                       Star products, including washing machines,
      With 3,100+ facilities around the              refrigerators, DVD players and other items.
world, our impact on the environment
cannot be overstated.                                See “Sustainability,” next page
                                                                                                            AAFES Factoid

 Leveraging technology: becoming the                                                                        In 2008, thanks to Dallas
 best retailer we can be                                                                              technology giant Texas Instruments,
                                                                                                      the film industry and AAFES, more
 Continued from previous page
                                                                                                      than 200 troops at Camp Arifjan
                                                                                                      in Kuwait became the world’s first
 moment they arrive to the time they leave.          it can be. Retailing Today’s “2008 Annual        group to screen Will Smith’s summer
        We also will gain access to the top          Top 150 Annual Industry Report” wrote            blockbuster movie, “Hancock,” in a
 procurement processes through “Operation            this about our efforts:                          digital cinema projector format.
 Blowtorch,” which kicked off in March                     “AAFES has been around a long                    The high-tech projector provided
 2008. Once completed by more than 100               time, but the past few years have seen           the Soldiers and Airmen with the
 procurement and IT specialists, Blowtorch           the organization digest a massive amount         highest quality image free of the
 will transform nearly every aspect of               of change en route to becoming a more            normal wear that takes place with
 AAFES business, even the plastic bags in            modern and efficient retailer. The changes       normal projectors.
 all of our stores. Oracle once again enters         are largely enabled by investments in
 the picture, this time with its E-Business          technology. However, the organization’s
 Suite, which Virgil DeArmond, our                   philosophy about how to manage its
 director of corporate procurement, praises          business also has evolved in a way                AAFES’ philosophy “about how
 as a system that will adeptly address               that puts it on an equal footing with                to manage its business has
 problems and give customers greater                 best-in-class retailers against whom it           evolved in a way that puts it on
 control and visibility over tracking their          competes. As investments were made in
                                                                                                                 an equal footing with
 items.                                              merchandising systems that centralized
                                                                                                        best-in-class retailers against
        At AAFES, we believe that                    product assortment decisions, it freed up
 leveraging technology drives results,               store managers who are now better able to                    whom it competes.”
 creates sustainable business platforms and          manage their stores.”                                               —Retailing Today
 allows the company to be the best retailer                 We couldn’t have said it better.

                                                                           7
                                        Sustainability: a major key
                   The                  to winning the future
                   AAFES                Continued from previous page
                   Stor y
                                       In 2008, nearly 35 percent of our appliances     and air-conditioning systems; digital signs;
                                       were Energy-Star rated—and we’re aiming          heat reduction and holding equipment;
                                       for 50 percent this year.                        more than 200 Energy Star reach-in
                                             Sales of energy-efficient CFL light        refrigerators, dishwashers, steamers, fryers
                 ‘Sustainability’ is   bulbs in our exchanges shot up by 290            and ice machines; and walk-in coolers.
                                       percent in 2008, compared to the previous               The expected savings from the
                   not a corporate
                                       year.                                            restaurant initiatives will only add to
                 buzzword—it’s a             Worldwide marketing tabloids               our bottom line and enable us to devote
                                       promote sustainable products, such as            hundreds of thousands of dollars more in
                     responsibility.   bamboo coffee filters and rugs made from         dividends to Morale, Welfare and Recreation
                      —Ann Scott,      recycled plastic bottles. We spread the          programs for service members. For example,
                                       sustainability ethic through board games         flexible batch broilers in all of our Burger
                 AAFES corporate       like “EarthOpoly,” where players are the         King restaurants are expected to yield more
        energy program manager         Earth’s stewards.                                than $924,000 in savings by the end of
                                                                                        2010.
                                       Sustainability at the gas pumps
                                                                                               Shoppers will even notice the “green
                                              When customers fill up their vehicles     wave” washing over our award-winning
                                       at our gas stations, energy-efficient light-     Web site, www.aafes.com, which we call
                                                  emitting diodes (LEDs) illuminate     “the largest BX/PX in the world.” In 2008,
                                                  the pumps. Those small solid-state    MilitaryRecycling.com, through the AAFES
                                                  lamps are 75 percent more energy      site, began paying shoppers for recycling
                                                  efficient and will provide paybacks   electronics, cell phones and computers.
                                                  in about five years.                          And that’s something that excites our
                                                         At Fort Polk, La., for         Merchandise Manager Don Walker: “They
                                                  instance, just changing to LEDs in    just log on and get rewarded for their stuff.”
                                                  the canopies over the gas pumps
                                                                                        Earth-friendly buildings
                                                  reduced the annual kilowatt hours
                                                  from nearly 39,000 to 5,000                  But we’re not stopping with our
                                                  saving nearly $4,100. At Fort         products and restaurant equipment. Our
                                                  Hood, Texas, wattage dropped          new “lifestyle centers” and other new
                                                  by 77 percent after “intelligent      facilities will be energy-efficient and built
                                                  lighting systems” were installed.     according to the latest earth-friendly
                                              What’s more, thirsty or hungry            standards.
                                       shoppers can slip coins into nearly 2,100               Ann’s team also uses a Web-based
                                       Energy Star-compliant vending machines           program they designed to track and compare
                                       in the continental United States—and             utility costs in all AAFES buildings, which
                                       we’re making more of our 17,107 machines         helped us reduce utility costs by $5.9
                                       energy-efficient.                                million in 2008, compared with 2007.
Motorists are filling up at our many          When our customers dine in more                  Our sustainability initiatives aren’t to
gas stations illuminated by energy-    than 2,000 of our brand-name restaurants,        be taken lightly. At AAFES, like Ann says,
efficient canopy lights, while CFL     they probably won’t realize that their           ‘sustainability’ is not a corporate buzzword,
light bulbs are hot sellers in our
                                       delicious meals are made with energy-            it’s a corporate responsibility that we take
stores throughout the world.
                                       efficient equipment. In 2008, we teamed up       very seriously so we can win the future.
                                       with brand partners Burger King, Subway
                                       and Taco Bell to install on-demand heating
                                                             8
Changing our thinking, not our oil
Something no bigger than two coffee cans slashes a
truck’s oil changes from six to one a year                                                           The



O
                                                                                                   AAFES
               ur own Rose Marie Brady          Most OPS clients pay for their investments
                                                                                                    Stor y
               knows every inch and             within six months. North America’s largest
               what’s under the hoods           independent fuel delivery carrier now runs
               of nearly 400 trucks that        its trucks 120,000 miles between
traverse America’s highways delivering          oil changes and slashed its
our products to exchanges. As chief of          maintenance costs by 60 percent,
Fleet Operations, her quest in 2008 to          or $480 a truck each year.
keep the trucks running as smoothly
                                                More bio-diesel fuel
as Swiss watches and cut maintenance
costs hit the jackpot—and it took                      To Rose Marie, in this age
something no bigger than two coffee             of cost cutting, installing the
cans.                                           systems on AAFES’ trucks was a
      Starting in April 2008, Rose Marie’s      no-brainer. “Like Oil Purification
team in the Logistics Directorate installed     Systems says, when it comes to
                                                vehicle maintenance, we are changing our         Within two years, the majority of
sophisticated oil purification systems on 294
                                                                                                     our 400 trucks will roll down
of our nearly 400 trucks, and discovered the    thinking, not our oil,” she says.
                                                                                                 America’s highways for 120,000
devices dropped the number of required oil             “The system has proven to save                 miles between oil changes.
changes from six a year per truck to only       money, which is critical in these economic
one. Now, mechanics change the oil in the       times. However, the effect on our
18-wheelers after 150,000 miles, rather than    environment would be the most visible
                                                accomplishment.”                                    “We expect to save 17,640
15,000.
                                                       She and other AAFES logistics                   gallons of oil a year—70
Two-year payback                                experts also are using 15 percent more                  gallons per truck—and
                                                earth-friendly bio-diesel fuel in 2008
       Although the systems cost $176,000                                                                   $882,000 in oil and
                                                than in the previous year; installing
to install, we expect to save 17,640 gallons                                                           maintenance costs over
                                                auxiliary power units on trucks so
of oil a year—70 gallons per truck—and
                                                drivers can operate TVs, coffee makers                              two years.”
$882,000 in oil and maintenance costs
over two years, which will recoup our
                                                and other devices while their rigs are                    —Rose Marie Brady,
                                                off; and using inflation devices that                    chief, fleet operations
investment. Eventually, Rose Marie’s
                                                maintain proper tire pressure at all
mechanics will install the devices on new
                                                times.
trucks we buy to replace old ones.
       Oil Purification Systems of Shelton,
Conn., developed the on-board refining
technology to meet a growing demand
among trucking, busing, construction,
mining and other companies with
large fleets to cut costs and create more
environmentally-friendly operations. OPS-1
removes solid and liquid contaminants from
engine oil, which allows users to reduce oil
consumption dramatically, cut maintenance
costs by 80 percent and extend equipment
life, says Mark Genereaux, a company vice
president.
       The company has installed more
                                                                                             AAFES’ new environmentally friendly
than 6,000 refining units since 2002.                                                                        tractor-trailer truck
                                                                       9
              The AAFES Story’s Factoids
‘Venerable’ company provides savings, music, gift certificates, phone cards, brand-
name electronics, low-interest credit cards to America’s Fighting Heroes and Families
• Helping Soldiers, Airmen, National Guard members,                                              •  Helping troops reach out and touch.
                     Reservists, Family members and military                                     AAFES is keeping deployed troops connected
                     retirees stretch their bucks. An exhaustive                                 with loved ones back home with the Military
                     Market Basket Survey by an independent                                      Exchange Global Prepaid Phone Cards. With
                     research firm of more than 300 products,                                    rates as low as 15 cents a minute, the phone
                     including shampoo, diapers and makeup,                                      cards provide the best value for troops calling
                     shows that AAFES does indeed save                                           from the Middle East to the United States.
                     authorized shoppers 20.38 percent. The                                      Since 2004, when the Help our Troops
                     complete results are available at www.aafes.                                                      Call Home program
com/docs/valuestory.htm.                                                                                               began, nearly 175,000
                                                                                                                       individual orders for
•  Providing music to the ears of troops. Recognizing that
                                                                                                                       about 344,000 phone
good music is integral to morale, we teamed up with 14 recording
                                                                                                                       cards valued at nearly
artists, including Grammy Award winners/nominees and multi-
                                                                                                                       $8 million have been
                    platinum sellers, to deliver a special gift to
                                                                                                                       purchased. The phone
                    troops during the 2008 holiday season—a
                                                                                                                       cards enable troops to
                    free CD produced exclusively for troops with
                                                                                                                       call from any of the 60+
                    tunes by Trace Adkins, Five for Fighting, Josh
                                                                          phone centers in Iraq, Afghanistan or Kuwait.
                    Groban, Isaac Hayes, Alan Jackson Jude, Roy
                                                                             Any American can send a Military Exchange phone card
                    Orbison, Joe Perry, Three Doors Down and
                                                                          to deployed troops or their Families, through our “Help Our
                    others.
                                                                          Troops Call Home” program. To do so, visit www.aafes.com
   This made the second “CD for the Troops” from Grammy-
                                                                          or call (800) 527-2345.
nominated, platinum-selling singer/songwriter John Ondrasik
of Five for Fighting. In 2007, the first CD reached more than             • Two more big reasons to shop AAFES. Our new Military
500,000 service members, with 400,000 downloads off www.aafes.            Star Rewards MasterCard began in 2008 rewarding shoppers for
com alone.                                                                                          everyday purchases on and off military
                                                                                                    installations. They also can get three-cent
• Gifts from the Homefront. In the five years since we launched
                                                                                                    discounts off a gallon of gas when they
“Gifts from the Homefront,” people from throughout the country
                                                                                                    use the regular low-interest Military
              have contributed more than $2 million toward gift
                                                                                                    Star private-label card—which can only
              cards and certificates to lift the morale of troops.
                                                                                                    be used on installations— to pay at 177
              Active-duty Soldiers, Airmen, Sailors, Marines
                                                                                                    AAFES stations in the continental United
              National Guard members and Reservists around
                                                                                                    States, Alaska and Puerto Rico.
              the world have redeemed 67,245 gift cards and
              certificates for Military Exchange Global prepaid                                           The regular Military Star private-
phone cards; snacks and drinks; DVDs; and other products.                                           label card generated nearly $2 billion
                                                                          in revenue for AAFES and the other military exchanges. The new
  To send gift cards of up to $500 under Gifts from the
                                                                          card, besides creating loyal customers, also provided us with a
Homefront, visit www.aafes.com or call (800) 527-2345.
                                                                          supplementary source of income of about $437,000 in 2008.
• Major accolades. AAFES received major kudos from Retailing              •   Sony partnership thrives. In recognition of AAFES exceeding
Today’s “2008 Annual Top 150 Annual Industry Report,” which                                 $100 million in purchases from Sony, the
                picked the organization as one of 12 “most                                  company’s leaders in Tokyo presented a plaque to
                venerable” companies whose “influence on                                    AAFES Chief Operating Officer Michael Howard
                retailing cannot be overstated.” The others                                 to commemorate the 50-year relationship. Our
                included Wal-Mart, Target, Sears, JC Penney and                             PowerZones throughout the world feature many
                Kohl’s. AAFES also was ranked 28th on the report’s                          products from Sony and other dealers.
                list of top 150 retailers.

                                                                     10
The AAFES story: a ‘taste of home’                                                               Our Top 10 Name-Brand
With Whoppers to Frappacino Mochas, troops can get                                                     Restaurants
away from war and return home . . . if only in their minds




S
                                                                                                     1.  Burger King—210
         oldiers, Airmen, National                    Our restaurant support in 2008 to              2.  Subway—133
         Guard members and Reservists           troops fighting the Global War on Terror             3.  Charley’s Grilled Subs—93
         around the world turned to             throughout the Middle East grew to 224               4.  Baskin Robbins—93
         the organization’s nearly 1,600        locations, up from 197 in the previous               5.  Taco Bell—69
restaurants to enjoy special “tastes of         year—sometimes not far from where bullets            6.  Green Bean Coffee,
home” in the forms of Whoppers, sub             were flying.                                             Popeyes—64 each
sandwiches, bagels, pizza, fried chicken,             At AAFES, we take very seriously our           7. Pizza Hut—51
and boatloads of Frappacino Mochas.             mission of providing troops unique tastes of         8. Cinnabon—41
                                                home, because as long as it takes them to            9. Starbucks—33
      From Baghdad’s battlefields to North
                                                eat a burger or pizza, they can return home,         10. Manchu Wok—23
Dakota’s frozen tundra to the lush island of
                                                if only in their minds. Like Roy Robertson,
Okinawa, customers bought nearly $825
                                                vice president over our food service division,
million worth of food and drinks in 2008
                                                puts it, “We make sure the Whoppers in
at our nearly 1,100 brand-name and 538
                                                Baghdad taste the same as the Whoppers in
signature-brand restaurants—a 9 percent
                                                their hometowns.”                                   “We make sure
increase from the previous year.
      We also operated 131 movie theaters,
                                                      But we also give them plenty of other       the Whoppers in
                                                opportunities to unwind. In an exclusive            Baghdad taste
six plants in Europe that made baked goods
                                                deal with AAFES, GameStop, the world’s
and bottled water, and 92 lunch programs at                                                        the same as the
                                                largest video-game retailer, opened 22
Department of Defense schools.                                                                   Whoppers in their
                                                stores, which are expected to generate at
Opening new restaurants                         least $3.6 million in earnings annually.              hometowns.”
                                                More GameStops are on the way for 2009.
       To meet customer demand during
                                                       Patrick McGhee, our general manager                 —Roy Robertson,
2008, we opened 86 eateries—Burger King,
                                                at Fort Lewis, expects big things out of
Charley’s Grilled Subs, Pizza Hut, Popeye’s,                                                                   vice president,
                                                the relationship, even at the Pizza Hut
Manchu Wok, Baskin Robbins, Captain D’s,                                                           Restaurant, Hospitality and
                                                and Blimpie’s restaurants next door to the
Einstein Bagels, Starbucks, among others,
                                                dynamic store.                                               Theater Division
and our own Anthony’s Pizza, Main Street
                                                      “I visited the location several times
Expresso and Robin Hood—around the
                                                today and at one time the check-out line was
planet, from one of the world’s largest coral
                                                20-plus Soldiers,” he says.
atolls in the South Pacific to Camp Taji in
                                                      That’s news we like to hear.                    In 2008, AAFES racked up even
Iraq.
                                                                                                 more awards for its restaurants.

                                   AAFES Factoid                                                      The Schofield Barracks’ Popeyes
                                                                                                 in Hawaii won the International
       If a customer calls, we’ll deliver.                                                       Gold Plate award from Popeyes
       Now, troops can get pizzas from Pizza Hut, Domino’s and Papa John’s                       Chicken & Biscuits. AAFES received
 delivered right to their doorsteps, thanks to a new pizza delivery program that                 the Operator of the Year award and
 started at nine military installations in the United States.                                    Camp Casey in Korea received the
                                                    Just in 2008, the program drove              “Bronze Plate.”
                                               additional earnings of $1.4 million. In                Schofield Barracks also was
                                               2009, 13 more delivery programs are
                                                                                                 recognized for logging $2 million in
                         The                   planned.
                                                                                                 sales, while Camp Casey and Kadena
                          AAFES
                                                                                                 AB on Okinawa hit $1.5 million each
                          Stor y
                                                                                                 in sales.


                                                                      11
                                                  Serving Soldiers in Harm’s Way
                                                  New Air Assault PX reaches troops in isolated,
                         The
                         AAFES                    dangerous mountains of Afghanistan
                         Stor y
                                                  D      EEP IN THE AFGHAN
                                                         MOUNTAINS—Soldiers at a
                                                        remote combat outpost in eastern
                                                                                                       “Out here, there isn’t much
                                                                                                    that reminds us of home. With
                                                                                                    AAFES, it’s indeed been like a
                                                        Afghanistan got the products they
                                                        needed in late 2008 thanks to a                       little slice of home.”
                                                        new mobile exchange airlifted
                                                        by helicopter into the volatile
                                                                                                 container no bigger than a typical laundry
                                                        mountainous region teeming with
                                                                                                 room, they buy deodorant, toothpaste,
                                                        enemy insurgents.
                                                                                                 shampoo, shaving products, snacks, drinks
                                                               AAFES’ new Air Assault PX         and tobacco.
                                                         program focused on serving troops at           “When I first heard they were going
                                                         Combat Outpost Malekshay, about         to fly a PX out here, I thought they were
                                                         three miles from the Pakistani border   lying. Who’s going fly all the way out here
                                                         at what arguably is the Global War      with a PX?” said Spec. Benjamin Nelson,
Army choppers begin flying                               on Terror’s ground zero.                one of Charlie’s members. “Out here, there
AAFES “air assault PXs”                                  “The guys at these locations are put    isn’t much that reminds us of home. With
to Soldiers isolated in the                       in some of the most extreme conditions,”       AAFES, it’s indeed been like a little slice
rugged Afghan mountains
                                                  said Robert Van Oss, a retired service         of home.”
in the background.
                                                  member who is the only AAFES associate                The troops are encouraged by
                                                  at the mobile exchange. “We know there         the program, which AAFES leaders in
                                                  is a need out here, and we’re trying to        Afghanistan may expand this year to other
We Reach Out to                                   find the best way to fill it with as much as   remote locations.
                                                  possible and as often as possible.”                   “Getting a chance to look at these
National Guard,                                          The Soldiers survive without the        magazines helps me keep up-to-date on
Reservists, too                                   amenities of larger military installations,    what’s going on back home and makes me
                                                  such as showers and normal AAFES               feel closer to the States,” said Sgt. Ronald

T    he brave citizen-warriors of the
     National Guard and Army and Air
Force Reserves represent a unique cus-
                                                  facilities. But from our 5-by-8-foot metal     Rucker Jr.


                                                 than during their training weekends or          instantaneous and actionable feedback.
tomer base for AAFES.
                                                 when called to active duty.                           We’re also on Twitter and YouTube.
       In fact, members of the National                Furthermore, a majority of National             Our National Guard and Reserves
Guard and Reserves make up about 25              Guard members and Reservists are unaware        fight terror in Iraq and Afghanistan, as
percent—or nearly 3 million—of the               that they can still shop at AAFES when they     well as battle raging forest fires and aid
11.5 million armed forces members, their         are not on active duty.                         in disaster recovery projects in the United
Families, and retirees who are eligible to             In 2008, we let them know their           States—and sometimes they’re taken for
shop at our exchanges throughout the world       exchange benefits were just waiting for them    granted.
and on our Web site, www.aafes.com. One          through mailings to millions of Reservists            This unending devotion on the part of
of them is our commander, Maj. Gen. Keith        and Guard members and then “parking lot         the National Guard members and Reservists
Thurgood, an active-duty member of the           sales” outside exchanges and commissaries.      to serving America is why we’re unleashing
U.S. Army Reserves.                                    In November, our Marketing’s              the power of AAFES to support them and
       Reaching these potential shoppers         Strategic Corporate Communications group        their Families like never before.
is critical because more than half of the        created the Salute to Your Service blog,              As in the words of General Thurgood,
National Guard members and Reservists            www.salutetoyourservice.com, a robust           “They, like all our patrons, deserve our very
live nowhere near traditional exchanges and      online community where shoppers and             best effort.”
never set foot on military installations other   our managers engage in conversations for
                                                                      12
Diversity
This competitive business strategy is woven                                                       The
into our overall plans to win the future                                                        AAFES
                                                                                                 Stor y


A
         t AAFES, our strength lies          incorporated into our overall strategy as a
         with a workforce of more            key to winning the future.
         than 43,000 associates that is            Workforce diversity also means                   “As we seek to better
comprised of 60 percent people of color      creating a professional environment           understand our customers, we
and 64 percent women. Forty-three            where the unique and diverse strengths
                                                                                            grow the business in new and
percent of our managers are people of        of associates and suppliers are valued,
                                                                                                        improved ways.”
color.                                       leveraged, recognized and rewarded.
                                             Companies with strong diversity programs
      This incredibly diverse workforce
                                             outperform those that don’t; and a mix of             —AAFES Commander
serves an equally diverse customer base
of 12.2 million military members, their
                                             ethnic backgrounds, thought, age and life          Maj. Gen. Keith Thurgood
                                             experiences add value to the organization
Families and retirees. To meet these
                                             through innovation and creativity.
customers’ needs, AAFES must understand
                                                   Under the leadership of
and reflect the same diversity within its
                                             Diversity Director Jeanne McDonald
organization.
                                             and others, we are paving the way
Major recognition                            with forward-thinking strategies.

       In 2008, we received the following    Sharing culture, networking
recognitions:
                                                    For instance, associate resource
       • Continued Excellence in
                                             groups provide opportunities for
Diversity, from Latina Style 50 magazine.
                                             workers to share cultures, give back
       • One of the country’s top 50
                                             to communities, network with senior
retailers, awarded by Professional Woman’s
                                             managers, attend career-building
magazine.
                                             workshops and assist in guiding
       • America’s Top Government
                                             product selection and advertising.
Agency for Diverse Business
                                                   In addition, we increased
Opportunities, from DiversityBusiness.
                                             our spending with diverse business                             AAFES received
com, a leading business-to-business Web
                                             owners last year by more than $59                national accolades in 2008 for
site, for the third straight year.                                                            workplace diversity initiatives.
                                             million.
       • Best Practices, U.S. Office of
                                                   In our five-year Strategic Plan,
Government Ethics.
                                             linking diversity to organizational goals,
       • Million Dollar Roundtable
                                             leadership, workforce, customers and
Award, from the Dallas Regional Minority
                                             suppliers will ensure we build a business
Business Development Agency for the
                                             sustainable over the next century.
third year in a row.
                                                   “Valuing diversity means creating
       • Federal Employer of the Year,
                                             a culture where every individual can
from the Texas Governor’s Committee on
                                             achieve and contribute to the success
People with Disabilities.
                                             of AAFES,” says AAFES Commander
Fostering unique, diverse strengths          Maj. Gen. Keith Thurgood. “As we
                                             seek to understand each other, we grow
      A generation ago, some experts
                                             associates and show we value them.
described workforce diversity as the right
                                             As we seek to better understand our                    A diverse group of AAFES
thing to do or a corporate responsibility.
                                             customers, we grow the business in new        associates serve an equally diverse
Today, diversity is recognized as a
                                             and improved ways.”                                          group of customers
competitive business strategy and
                                                                                                            around the world.
                                                                   13
Commander’s Column
We’re spreading the news of our unique ‘value story,’ the AAFES story
Continued from Page 3

of home” to America’s Fighting Heroes in Iraq, Afghanistan and the                     • Providing expeditionary and mission capabilities to “go
rest of the Middle East, where at least 400 associates were deployed             where you go,” like our motto says;
voluntarily in 2008.                                                                   • Collaborating with our federal and commercial partners;
                                                                                       • Communicating the benefit, value and capabilities of
Bakeries and barbers, gas and glasses
                                                                                 AAFES.
       We also fix and sell cars and the gas that goes in them; cut                    In my congressional testimony this year, I said “winning the
and style hair; issue low-interest credit cards; operate overseas                future” is not accomplished in one giant leap, but through measured
bakeries making 6 million loaves of bread and factories making 6                 steps along a path where teamwork, excellent customer service,
million gallons of bottled water; provide dry cleaning, packing,                 innovation and results are rewarded.
shipping, florist, and optometry and optical services; run Internet                    AAFES will remain a viable force in the lives of our customers
                                                  cafes; furnish pre-paid        and military communities for many years to come and wherever our
                                                  phone cards so troops          fighting heroes serve.
                                                  in Afghanistan and
                                                  Iraq can call loved
                          The                     ones back home; and
                          AAFES                   dish up 4 million
                          Stor y                  nutritious meals                                 Maj. Gen. Keith Thurgood, Commander
                                                  annually to children
in 92 Department of Defense schools in nine countries.
       Our valued customers enjoy the latest fashions, including a                      Total Retail Sales, 2006-2008
wide selection of exclusive-brand quality clothing. They also find
the most up-to-date electronics in our “PowerZones,” a virtual
Nirvana for the gadget-minded.
       Furthermore, thousands of our customers log onto www.aafes.
com and browse 100-plus name-brand retailers and 18 million
items. In February 2008 alone, 870,000 new visitors came to the
site, and 370,000-plus repeat customers logged 5 million page
views.
       Additionally, we are interacting with customers in online chat
rooms, on a blog and even Twitter.
       I’m proud that these products and services are giving our
shoppers what they want. In fact, an independent “market basket”
survey confirms that AAFES is a one-stop solution offering overall
savings of more than 20 percent compared to the competition.
                                                                                                 Revenue, 2006-2008
Spreading the ‘value story’

      We are spreading the news of this value story as we finish the
Patriot Family Deployment Passbook, a comprehensive coupon
book packed with unique savings at AAFES retail, food and services
locations.
      However, to focus on serving shoppers into the future, we
refined our strategic goals in 2008 to build on past successes and
take proactive actions at the local level—the stores. These Strategic
Goals will guide us through 2009 and beyond:
      • Developing a lifelong emotional connection with customers;
      • Building a culture of loyalty, ownership, sustainability and
continuous improvement;                                                                                                                Figures in millions

                                                                            14
Coach, Macy’s links, to
boost sales, product lines                                                                          The
Continued from Page 2                                                                             AAFES
                                                                                                   Stor y
$37 million. Representing another AAFES       merchandising, allocation, replenishment,
“first,” ladies’ apparel will be driven by    forecasting, pricing and inventory
two mutually-exclusive brands from            management practices.
Macy’s—STYLE&CO and INC—for missy                   At our worldwide
to women’s sizes. We expect sales to hit $8   distribution centers, we are
million on these products.                    rolling out a $34 million
                                              warehouse management system
Expanding exclusive labels
                                              that will get products into
      Already, AAFES stores are updating      customers’ hands faster than
our highly profitable exclusive brands of     ever. To read more, see Pages
men’s, women’s and children’s clothing        6-7.
that convey the overall “personalities”             In 2008, meanwhile,
                         of our target        we completed nearly $202
                         customers.           million in new and refurbished                       A display of Coach purses at
                                                                                                      Fort Sam Houston, Texas.
                         Our family of        shoppettes, restaurants and shopping
                         exclusive-label      centers at 118 installations.
                         apparel will grow
                                              From Alaska to Germany
                         this year with
                         Drift Away ladies’         We also set up operations on the
                         sleepwear, and       South Pacific’s Kwajalein to serve troops at
                         we certainly will    a missile test site.
 One of our many capture the young                  This year, we’ll open new or
  2008 catalogs.
                         men’s business,      expanded shopping centers at Okinawa’s
                         with cutting-        Kadena AB, Germany’s Ramstein AB,
                         edge denim lines     Minot AFB, N.D., and Eielson AFB and
like Mavi, X-Ray, Kentucky Jean Co. and       Fort Wainwright, Alaska. Customers
MEK, with sales projected to grow to $1       at Japan’s Misawa AB will get a new
million annually.                             shoppette and Popeyes restaurant, while a
                                              new shoppette and AAFES gas station are
Coffee, computers and construction
                                              coming to Yokota AB.
      For coffee lovers, our Consumables            We view these developments as
division launched our exclusive “Premium      opportunities to accomplish a dual mission
Java” in 381 exchanges, and sales have        nearly 114 years in the making—providing
already climbed by 45 percent. John           quality goods and services at competitively
Engroff, vice president for consumables,      low prices and generating earnings to          Our family of exclusive-label
says a loyalty program, seasonal flavor       support Morale, Welfare and Recreation         products brought in millions in
profiles and combo promotions will build      programs for the troops.                       revenue in 2008. For instance,
an “emotional connection” with customers.           Like AAFES Commander Maj. Gen.           sales of nearly 595 Exchange
                                              Keith Thurgood says, “We will take             Select products topped $41
      To keep track of all the sales and
                                                                                             million, up 2.4 percent from the
our supply chain, we’re leveraging            proactive action at the lowest levels of
                                                                                             previous year. Exchange Select
the retail and distribution industries’       the organization—the stores—to win the         offers a full and competitive line
latest technology. In February 2008, we       future by establishing lifelong emotional      of health & beauty, household
implemented the $177 million Oracle           connections with the best customers in the     cleaning, laundry, office, picnic
Retail technology, which provides the best    world, one person at a time.”                  and camera products at an
                                                                                             average savings of 48 percent.

                                                                   15
                                   AAFES responds to Ike’s
                 The
                                   havoc, devastation
                                   Continued from Page 3
                 AAFES
                 Stor y           who picked up drinks and grabbed snacks           cell phone to round up a power generator
                                  after long days of recovery operations.           from our Atlanta warehouse.
                                  Authorized shoppers also traveled up to 30               This manager who worked nearly
                                  miles to pick up basic necessities, such as       around the clock at the BX then returned
“Our most important               ice, at the mobile exchange.                      home through debris-filled streets to make
                                         A few days later, the associates           whatever repairs he could to his house.
mission is to support troops
                                  moved the exchange-on-wheels 40 miles             Roger is the real example of enduring an
in contingency locations, to      to Galveston’s airport. As homeowners             unbelievably horrendous personal tragedy,
                                  returned, AAFES’ mobile field exchange            but stepping up for our customers.
bring that ‘taste of home’        took on a special importance for military                Isn’t that why AAFES is here? These
when they absolutely need         retirees rebuilding their lives: it offered       from-the-heart feelings and actions make
                                  generators, chain saws and bug spray.             me proud to tell people I am the AAFES
it the most.”                                                                       commander.
                                  Making life a little comfortable
                                                                                           When troops need us, we’re there with
                                         Team leader John Burk, sales and           our mobile exchanges and sacrificing our
—Capt. Kristin Burt, AAFES        merchandise manager at Lackland AFB,              personal lives, and not just for hurricane
                                  summed up their task quite beautifully:           relief efforts.
contingency planning officer
                                  “All we want to do is make life a little more
                                                                                    Pride in dedication, commitment
                                  comfortable for those working to bring
                                                     life back to normal for              In fact, such assistance is so important
                                                     the residents here. By         to the AAFES mission that we have
                                                     volunteering to support        contingency planners here at our Dallas
                                                     the troops, it’s our way of    headquarters.
                                                     giving back to them for              “Our most important mission is to
                                                     all the hard work they’re      support troops in contingency locations,
                                                     doing.                         to bring that ‘taste of home’ when they
                                                            “They appreciate        absolutely need it the most,” said Capt.
                                                     that we’re here when they      Kristin Burt, an AAFES contingency
                                                     didn’t expect us. Even         planning officer. “Troops can rely on AAFES
                                                     though we’re only doing        to be on the ground with what they need
                                                     our job, it’s very rewarding   and want during a deployment or a domestic
                                  and worthwhile to be here supporting the          emergency.”
                                  troops.”                                                There are no words to adequately
                                         I’m also proud of folks like Roger         describe the AAFES team’s dedication and
                                  Lindsey, our acting facility manager at the       commitment to excellence in this endeavor.
                                  Ellington Field exchange. Despite his house       The military and civilian leaders who
                                  suffering extensive damage from Ike, Roger        formed AAFES more than a century ago
                                  still reported to work to serve our customers     would be proud of how we are still living up
                                  and ensure his associates were safe.              to our mission, whether in the Global War
AAFES associates from San                Roger unloaded trucks, stocked,            on Terror or a hurricane’s aftermath.
Antonio and Waco staffed a
                                  cleaned, priced and worked the customer                 I am proud of the work our teams have
53-foot mobile exchange, above,
to serve troops helping resi-     carry-outs from the early-morning hours           done to bring the full spectrum of AAFES’
dents recover from Hurricane      to well into the evening. He moved                mission support capabilities to bear at home
Ike’s wrath.                      merchandise from the Ellington BX to the          and abroad.
                                  mobile field operation, and used his personal           You can count on us!
                                                        16
Mobile exchanges: helping us ‘go where you go’




O
              ur mobile exchanges             Ayacucho region of Peru, where 950 troops
                                                                                               The
              certainly help us live up       spent three months building medical
                                                                                             AAFES
              to the motto, “We Go            clinics, schoolhouses and a water well.
                                                                                              Stor y
              Where You Go”—and                      They found an AAFES mobile
there was no better example of that           exchange staffed by two of our Honduras
in 2008 than in northern California’s         Exchange associates and fully stocked with
forests and the isolated mountains of         snacks, drinks, baby wipes, deodorant and
Peru.                                         toothpaste.
      When 600 California National                   “Let me tell you, I
Guard members deployed this past fall to      didn’t expect AAFES to be
battle raging fires, associates from Travis   here in Peru to support a
AFB and Beale AFB came as far as 240          small task force for a such
miles from their own homes to set up three    short period of time,” said
mobile exchanges.                             Capt. Aurelio Perez, from
      Throughout their stay, they never       Fort Buchanan, Puerto
knew when the menacing fire would pour        Rico. “But to have AAFES
over the ridge and force them to flee. To     here, carrying items that I
Associate Debi Monaghan, the air quality      forgot to bring, need more
was so poor that “the sun appeared red.”      of, or just plain want to
      “The fire fighters and National         have, has made this bare bones camp feel a
Guard are working hard to stop the fires      bit like home.”
that have devastated California for more             That’s exactly why our associates
than a month, so our associates don’t         deploy to the ends of the earth to serve
mind working the long hours necessary to      America’s Fighting Heroes—to give them
support them,” she said.                      tastes of home, whether they’re fighting
      Many associates share that same         the Global War on Terror in the Middle
attitude regardless of where they’re          East or serving impoverished residents in
deployed, even in the remote, mountainous     the mountains of Peru.                           Tired firefighters file into an
                                                                                                AAFES mobile exchange in
                                                                                                   northern California, while
Personal shoppers                             for you,’” says Mark Shutte, one of our           an Airman looks for snacks
We care for our wounded                       personal shoppers at Ramstein AB in              at another mobile exchange
fighters while they recover                   Germany.                                           in the Peruvian mountains.
                                                    Soldiers at Walter Reed Medical

T     o wounded troops at Brooke
      Army Medical Center in San
Antonio and Germany’s Landstuhl
                                              Center and Brooke also get free
                                              uniform modifications for their injuries
                                              under a program the U.S. Army began
Regional Medical Center, they can             through AAFES. Changes include
concentrate on rehabilitation rather          Velcro closures, sleeve zippers, and
than worrying about getting clean             footwear designed for prosthetics.
socks.                                              Our support also continues into
     Associates at Fort Sam Houston,          civilian life. We attend the Department
where Brooke is located, and Landstuhl        of Defense’s Hiring Heroes career fairs
serve as their “personal shoppers,”           to recruit them for jobs.
ensuring they get from our stores the               These vital programs for our
clothes, personal hygiene items and           wounded warriors show that our
                                              support to combat troops is central to       A vendor donated a pool table to
other products they need.
                                                                                             Fort Sam Houston for Soldiers
     “AAFES says, ‘We Go Where You            our call, whether they’re fighting in
                                                                                              recovering from injuries in the
Go,’ and I’m adding to it, ‘We are here       battle or recovering from their injuries.                Global War on Terror.
                                                                  17
                                                   Freedom Crossing
                            The                    ‘Lifestyle centers’ to become shopping
                            AAFES                  destinations with small-town, Main Street flair




                                                   A
                            Stor y
                                                                     s heat from summer’s          commissary will sandwich 172,000 square
                                                                     blast furnace scorches        feet of third-party retailers.
                                                                     Fort Bliss, Texas, and              Freedom Crossing is expected to create
                                                                     surrounding El Paso           $488 million in earnings for AAFES.
                                                                     in 2010, Soldiers and               Preliminary planning continues on
What an apropos name                               their families can cool their heels and         similar centers at Fort Sam Houston, Texas,
for this never-before-seen                         lunch inside the installation’s nationally      and Fort Lewis, Wash., where we plan to
                                                   known restaurants, then watch first-run         start construction in mid-2011. Smaller
shopping destination for                           movies on one of 10 movie screens in a          installations will continue to see traditional
Soldiers: Freedom                                  top-rung theater.                               AAFES exchanges.
                                                         Maybe they’ll browse in a well-known      Major paradigm shift
Crossing.
                                                   shoe store or sporting-goods outlet, and then
                                                   check out the hottest movies and games at a           Freedom Crossing represents a
                                                                    major video retailer.          major paradigm shift for us, because
                                                                          This spring, three       we historically have built big-box retail
                                                                    years of planning came         stores beside the Defense Commissary
                                                                    to fruition when we            Agency’s big-box grocery stores. But under
                                                                    broke ground on a nearly       the guidance of Joseph Giuffreda, a vice
                                                                    500,000-square-foot, $97       president in our Strategic Planning &
                                                                    million unique mix of          Partnerships Directorate, AAFES is opening
                                                                    shopping, entertainment,       the vast military market to outside retailers.
                                                                    dining and relaxation                Under the Defense Department’s
                                                                    venues that no military        troop redeployment program, Fort Bliss—a
                                                                    complex has ever seen.         1.12-million-acre spread bigger than Rhode
                                                                          The “lifestyle center”   Island—will morph into the country’s
The Fort Bliss ‘lifestyle center’                  is expected to open in October 2010 to an       fourth largest Army installation by 2013,
will be the first of its kind on                   excited throng of shoppers numbering in the     with more than 90,000 Soldiers by 2012.
any military installation in the                   thousands.                                            Add family members to the mix, and
world.                                                                                             136,000 total customers represent an ideal
                                                         And what an apropos name for this
                                                   never-seen-before shopping destination          market for retailers.
         Will Soldiers, their Families and         that serves our Fighting Heroes: Freedom        Stable economic pool
 retirees who live off-base return to Fort Bliss   Crossing.
 for leisure and shopping? To ensure they                                                                “This development will be the
                                                   Quaint surroundings, comfy benches              social gathering spot for Soldiers and
 do, we have designed an environment far
                                                         Freedom Crossing will resemble a          their Families where they feel a sense of
 superior to any retail setting in the El Paso
                                                   small town’s Main Street, with quaint           belonging,” says Todd Rosen, vice president
 area.
                                                   surroundings accented by fountains, comfy       with Denver’s ServiceStar Development
         What’s more, they will pay no sales                                                       Co., the center’s developer. “Even with the
                                                   benches and lots of green space over 52
 tax at AAFES’ direct operations and the                                                           economic challenges the retail industry is
                                                   acres—a destination where military families
 commissary at Freedom Crossing—and                stay as long as they like and spend more        facing, those retailers who are open to new
 know that about 60 percent of the profits         money rather than going outside the gates       locations understand the possibility of a new
 will be reinvested as dividends into Morale,      to our competitors.                             sales channel never before open to them—
                                                         A traditional AAFES main store,           and military personnel who would give
 Welfare and Recreation programs for the
                                                   nearly 79,000 square feet bigger than the       them a stable economic pool of customers in
 troops.
                                                   present facility, and a 111,000-square-foot     a world with uncertain paychecks.”
                                                                        18
                                    AAFES Leadership



      Maj. Gen.                      Brig. Gen.             Michael Howard,               Chief Master Sgt.      Col. Thomas Baker,
   Keith Thurgood,                Fran Hendricks,           Chief Operating                  Jeffry Helm           Chief of Staff
    Commander                   Deputy Commander                Officer                    Assistant to the
                                                                                            Commander


                                        Board of Directors
                            Lt. Gen. Richard Y. Newton III,            Kathleen I. Ferguson, SES, Deputy Assistant Secretary of the
                            USAF, Chairman                             Air Force (Installations)
                            Deputy Chief of Staff, Manpower &
                                                                       Charles E. Milam, SES, Deputy Director, Air Force Services (HQ
                            Personnel, U.S. Air Force (AF/A1)
                                                                       USAF/A1S)

                                                                       Karl Schneider, SES, Assistant Deputy Chief of Staff, G-1

                                                                       Brig. Gen. David E. Price, USAF, Director of Budget Ops,
                                                                       HQ USAF
Lt. Gen. Mitchell H. Stevenson, USA, Senior Member
Deputy Chief of Staff, G-4, U.S. Army                                  Gregg Cox, Executive Secretary, AAFES

SMA Kenneth O. Preston, USA, Sergeant Major of the                     A position representing the U.S. Army Family and MWR Command
Army                                                                   was vacant.

CMSAF Rodney McKinley, USAF, Chief Master Sergeant
of the Air Force
                                                                                     Regional Commanders
Lt. Gen. Gary D. Speer, USA, Deputy Commanding
General/Chief of Staff, U.S. Army Europe and Seventh Army

Lt. Gen. Joseph F. Peterson, USA, DCG/CS, U.S. Army
Forces Command

Lt. Gen. Edgar E. Stanton III, USA, Military Deputy for
Budget

Maj. Gen. Gilmary M. Hostage III, USAF
                                                                             Col. Steve Kimball,         Col. Chuck Salvo,
Vice Commander, Pacific Air Forces
                                                                               Pacific Region             Europe Region
Maj. Gen. Robert B. Newman Jr., USAF
Adjuctant General of Virginia

Maj. Gen. Larry Spencer, USAF, Deputy Assistant Secretary
of the Air Force (Budget)

Maj. Gen. Keith Thurgood, USA, Commander, Army and
Air Force Exchange Service

Lynn S. Heirakuji, SES, Deputy Assistant Secretary of the
Army (Personnel Oversight)                                                    Sgt. Maj. James             Sgt. Maj. Douglas
                                                                            Pigford, Assistant to       Dunn, Assistant to the
Barbara J. Barger, SES, Deputy Assistant Secretary of the                     the Commander                 Commander
Air Force (Force Management Integration)


                                                                  19
AAFES Dividends to Morale, Welfare and Recreation
        Programs for the Armed Services




     Financial charts by Veronica Nelson, AAFES financial analyst
    The AAFES Story in Pictures




Our Yokota AB main store in Japan
won the Best Exchange Store in the
                                       The past seven AAFES Drivers of the Year for the continental United States
Pacific from customers polled by
                                       gather at the Dan Daniel Distribution Center in Newport News, Va., with
Stars and Stripes newspaper, the
                                       Logistics Senior Vice President Dale Bryan, left, and AAFES Commander
sixth time in seven years associates
                                       Maj. Gen. Keith Thurgood. Roger Brown, third from left, was named the
were honored with the award. The
                                       2008 Driver of the Year in the United States after driving more than 2
BX got high marks for its furniture
                                       million accident-free miles.
store, food court, shoppette, gift
shop, and long-distance service.




Troops file into a new temporary                                             Associates from AAFES-Europe
AAFES exchange at Camp Bastion                                               serve troops during military
in Afghanistan.                                                              exercises in the country of Georgia
                                       Soldiers give a thumbs-up during      in 2008—another example of “We
                                       the opening of a GameStop at Fort     Go Where You Go.”
                                       Hood, Texas. AAFES and the coun-
                                       try’s largest video-game dealer are
                                       opening stores around the world for
                                       the troops’ enjoyment.




                                                                             Cashier Colline Arnold bids farewell
                                                                             to the final customer at our Hanau
                                                                             main store in Germany, which
                                       A crowd of shoppers get ready         closed after 63 years in response to
Associates at Maxwell AFB, Ala.,       for good deals at the grand open-     the drawdown of troops in Europe.
sign a banner for troops and civil-    ing of the AAFES exchange at          An AAFES store at Wurzburg,
ians serving in Afghanistan.           Minot AFB, N.D.                       Germany, also closed.
Army and Air Force Exchange Service
         P.O. Box 660202
      Dallas, TX 75266-0202


         (800) 527-6790


         www.aafes.com

				
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