Annual Report 2007 ‘Serving the Best Customers in the World’
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Army and Air Force Exchange Service Annual Report 2007 ‘Serving the Best Customers in the World’ For more than 113 years, providing Soldiers, Airmen, National Guard members, Reservists, Families and retirees throughout the world with exceptional services and brand-name goods at competitive prices. “In this annual report, you’ll learn how 43,658 associates are making a difference, driving results and fundamentally changing how AAFES does business to better serve our Soldiers, Airmen, National Guard and Reservists who gallantly lay their lives on the line.” — Brig. Gen. Keith Thurgood Commander’s Column Exceeding expectations of “the 2007 was an exciting year and a tipping best customers in the world” point for AAFES. Our intense focus on performance delivered record results. For orldwide, we have the instance, AAFES: opportunity to connect • Continued to expand multicultural Wwith our customers almost opportunities in hiring and with 800,000 times each day. Each one of vendors. We plan to grow spending those encounters represents a moment in 2008 with minority partners to of truth where we either exceed the $120 million. expectations of “the best customers in the • Increased earnings, subject to world” or we fall short. dividends, to $426 million, up 27 Our customers expect excellence and percent, including appropriated increasingly demand consistent value and funding. service. • Decreased worldwide retail mark- In this annual report, you’ll learn how downs by 14 percent. • Improved associate and customer our 43,658 associates are making a differ- • Decreased enterprise-wide inven- satisfaction scores by two points. ence, driving results and fundamentally tory by $107.5 million. • Completed implementation of our changing how AAFES does business to • Provided many private-label brands $177 million Oracle enterprise better serve our Soldiers, Airmen, Nation- to enhance our value to customers. resource system. (See Page 8) al Guard and Reservists who gallantly lay (See Page 9) • Invested $355 million in capital their lives on the line serving our nation. • Saved about $3 million, thanks to programs at 57 installations, includ- Those customers also include Fam- an energized sustainability team. ing 496 new or renovated retail, ily members waiting for their heroes to • Increased our Energy Star major dining and services destinations. return home, as well as retirees who have appliances from 21 items to 37— They include eight new shopping bravely served America in years past. or half of our present products. centers. We will invest $1.2 billion From Texas to the battlefields during the next few years in con- struction projects. (See Page 20) In this publication, you’ll read about the • Established a strategic planning scope of our mission, what differentiates team to help fill the innovation us from our civilian competitors, and how pipeline with new business oppor- our reach extends from Fort Hood, Texas, tunities. to Japan’s Misawa Air Base, to the battle- • Defined our legislative and policy fields of the Global War on Terror. agenda to support future growth You will also learn about our lines of plans. business and multi-channel retailing ef- • Delivered about $140 million in forts, which include traditional brick and supply chain productivity. mortar, e-commerce and catalog sales. See “We Listen . ,” Page 16 2 “No matter where I was deployed, AAFES has been there, providing the comforts of home in the most uncomfortable locations. AAFES is the only retailer with people putting their lives on the line to support my troops in the combat zone.” —Capt. Samuel J. Jungman, U.S. Army Table of contents 4 — 2007: a great, but challenging, year 10 and 11 — Lifestyle Cen- ters: a shift in the AAFES retail • AAFES and its carbon paradigm footprint 12 — What the numbers say • Giving troops more tools about AAFES to reach out and touch loved ones 14 — Our associates go the extra mile 5 — COO Michael Howard: “Rising to the Challenges” 15 — AAFES: so much more than just a BX/PX 6 and 7 — Financial charts 16 — A special AAFES hero 8 — 2008 and Beyond: The wins a special award Impact of Oracle Retail 20 — AAFES builds for the 9 — AAFES private labels for present with $1 billion in capital clothes, health and beauty aids, improvements nearly everything else 22 — Audited financials 3 2007 in Review AAFES and the A great, but challenging, year ‘Green Carpet’ Sustainability and the Carbon Footprint AFES rolled out the green carpet in 2007 and plans Ato keep it out to sustain the future by cutting operating costs and becoming more energy efficient. “We will reduce our carbon footprint substantially,” said Ann Scott, AAFES’ corporate energy manager. “Our sustainability initiative will increase AAFES’ recycling efforts to include ev- erything from corrugated Emphasizing cardboard and energy use will aluminum cans save AAFES to plastics and more than $9 ere are major events and initia- joined AAFES, U.S. Air plastic hang- million over the tives launched in 2007—and a Force Brig. Gen. Fran ers.” next four years. Hpeek at what will come this year Hendricks became Deputy The savings and beyond: Commanding General. A have already Change in Commanders. In August, 27-year Air Force veteran, started. In 2007, Scott identified errors Brig. Gen. Keith Thurgood became Com- he came from the De- Brig. Gen. Keith Thurgood in sewer charges and saved AAFES mander, succeeding Maj. Gen. Bill Essex, fense Advanced Research $200,000 a year. What’s more, correct- who retired after a 34-year Air Force Projects Agency in ing errors in how AAFES was billed career. He served previously as Assistant Washington, where he for energy at Air Force facilities saved Division Commander (Operation), 95th designed the “air base of about $3 million. Division, U.S. Army Reserves, in Okla- the future.” In 2008 and beyond, AAFES’ annual homa City. Multi-channel retail- Brig. Gen. Fran sustainability goals are: In 2006, General Thurgood, experienced ing efforts. The inter- Hendricks in supply chain and logistics at PepsiCo, nationally recognized Continued, Page 18 deployed to the Middle East, where he All-Services Exchange Online Store— oversaw shipments of everything from www.aafes.com—is more popular than tanks to ChapStick. ever before. A month before General Thurgood Continued, Page 17 Resilian: Getting and Keeping Troops ‘Connected’ Soldiers and Airmen often live far Internet and telephone product under away from Families and friends while the Resilian Communications brand serving their country, but new telecom- name. The products are designed spe- munications products from AAFES cifically to meet the needs of today’s will soon help close that gap. “on-the-go” military and Families. Later this year, AAFES will launch “We’re breaking new ground with a global wireless cellular product and Resilian,” Vice President Craig Sewell early next year will offer a bundled TV, Continued, Page 18 4 Michael Howard Chief Operating Officer Rising to the the troops in the Middle East challenges are our major challenges. However, our associates are e are justifiably rising to the challenges, giv- proud of our ing us a unique advantage and Wachievements helping differentiate AAFES and performance in 2007. from our competitors. Whether at military installations like Dyess Air As we look forward to a We are providing our as- Force Base, Texas, above, or in the Middle East, successful 2008 and beyond, sociates with the tools of below, AAFES stands ready to serve. our continued success “empowerment” and “pride depends on our ability to of ownership.” Our associates demand more of ourselves. are shop owners, not shop We are committed to keepers. achieving even better results; Driving out costs improving the total store experience; earning more We have the latest cutting- by losing less from theft, edge supply chain and the paperwork errors and other right people to improve incidents; and using new merchandise procurement technology to grow profitable and distribution. Our entire sales. supply chain is being refined We will continue focus- continuously to drive out ing on delivering a shopping costs and improve accuracy experience that surpasses ex- and efficiency, allowing us to pectations so that our patrons make better buying and stock visit us again and again. decisions. Our Business Intelligence Facing tests experts are analyzing nearly Other AAFES Events in 2007: FY 2007 was successful every aspect of our business At Fort Sam Houston’s Brooke Army Medical due to the hard work and to create user-friendly reports Center, AAFES serves troops recovering from dedication of our associates. that will provide timely in- injuries so these “wounded warriors” can con- We focused on the basics: formation for better informed centrate on rehabilitation rather than worrying improving customer service, decisions. about getting haircuts and clean socks. investing in our most impor- Fiscal year 2007 set the tant asset—our people—and framework to make 2008 and improving processes. beyond a positive experi- AAFES tactical field exchanges, like the one pic- FY 2008 proves to be ence for our customers and tured above, are serving troops building schools, equally as daunting, and will a historical business success hospitals and wells in Trinidad, Tobago and test AAFES. The uncertain for this great company with a Suriname. The exchanges also support mission economy, spiraling gas prices great mission to serve troops. training, exercise support and troop redeploy- and our mission of serving ment, and disaster response in the United States. 5 AAFES Snapshots AAFES Dividends to Morale, Welfare and Recreation Programs for the Armed Services Note: Amount of dividends is based on earnings and troop strength for each Service Branch. All amounts in millions. AAFES Associates AAFES Faithful Patrons “Foreign nationals” include residents of Iraq, Afghanistan, Ku- wait, Bosnia, Kosovo and other countries in which AAFES oper- ates exchanges.