Military exchange service consolidation gaining support

Consolidation of the Defense Commissary Agency (DeCA) and three separate military exchange services into a single Defense Retail Activity (DeRA) is gaining support among policymakers inside the Department of Defense and perhaps a key congressional subcommittee, a source reports.

The idea to merge all military stores under a single agency is a major recommendation of the Military Compensation and Retirement Modernization Commission. It sees savings to the Department of Defense of $426 million annually by fiscal 2020 and, more importantly, commissioners say the move will preserve prized shopping discounts for millions of military patrons.

Over decades, the three exchange services — Army and Air Force Exchanges Service (AAFES), Navy Exchange (NEX) and Marine Corps Exchange (MCX) — have been able to fend off all attempts to merge them into a single for-profit resale operation, arguing that service-unique cultural identities had to be maintained, and that complex disparities in how stores operate and profits are used make a merger costly and impractical.

Today, however, military stores face threats to their survival not seen before. Smaller defense budgets mandated by the 2011 Budget Congress Act have the Department of Defense urging Congress to slash $1 billion a year from the Defense Commissary Agency’s $1.4 billion budget.

Advocates for military shoppers, and for manufacturers and suppliers doing business with base stores, have formed a “Coalition to Save Our Military Shopping Benefits.” In an April 16 letter to the armed services committee, the coalition says DoD’s plan “will destroy the commissary benefit” and “severely impact young families and fixed-income retirees.”

It also argues that obliterating the commissary benefit will eliminate tens of thousands of “much needed jobs for the military community.”

Exchanges services, meanwhile, already face sharply falling sales due to the post-war force drawdown, closure of profitable stores overseas and competition for sales from aggressive discounters off base.

The exchange services fear a far steeper drop in sales if shopper savings at commissaries are allowed to fall from 30 percent down to 10 percent, as DoD proposes in its plan to end budget support of most stateside commissaries by 2017.

The logic behind the DoD plan to cut the annual appropriation for commissaries by 70 percent goes something like this:

Yes, patron savings would fall at stateside stores, and staffs and store hours also would be reduced. But enough patrons will continue to shop on base for a 10 percent savings that more revenue from raising prices would sustain the benefit stateside, while overseas commissaries would see no cuts.

The flaw in that logic, suggests the think tank RAND in a new report, is that given the availability of substitute commercial stores for stateside patrons, any increase in revenue realized by higher store prices would be offset “disproportionately” by reduced revenues from fewer goods sold.

In other words, RAND says, enough shoppers would turn away that commissary revenues would fall, putting discount shopping on base into the kind of death spiral that advocates have forecast.

Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at:

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