Army & Air Force Exchange Service Annual Report 2008 The AAFES Story: For 114 years, ‘serving the best customers in the world’ The AAFES Story For 114 years, 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. The AAFES Story: Table of Contents 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 to grow 3 — We served troops 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 AFES is clearly allocation, forecasting, merchandising, operating in pricing, purchasing, replenishment and challenging times in inventory management practices. which the national • Introducing 36 new items under economy’s dramatic the 593-product Exchange Select exclusive Adownturn devastated the retail brand to help budget-conscious shoppers landscape and resulted in decreased sales save 20 to 50 percent on goods comparable and sinking consumer confidence. in quality to national brands. • Increasing the percentage of Energy- In this annual report, however, you’ll Star appliances to nearly 35 percent of our read how our remarkable reputation, total stock of appliances and enacting other excellent credit rating, and deliberate We remain a financially sustainability measures (See Page 7). actions by our 43,000+ forward-thinking • Creating an integrated business stable, global multi-channel associates buoyed AAFES during this model—Operation Be Fit—to promote retailer serving 12.2 million economic storm. We accomplished these health and wellness solutions for customers goals by: active-duty, Reserve, and associates that will transform outcomes • Increasing total sales to nearly $10 and reduce healthcare costs. National Guard, Family billion—about three percent higher than the • Continuing to provide expeditionary members and retirees in 30+ previous year. and mission support capabilities to our • Achieving earnings of $376 million. countries, five U.S. territories troops at home and abroad. • Providing dividends of $264.5 As you can see, we remain a financially and 50 states. million to Morale, Welfare and Recreation stable, global multi-channel retailer that programs for the troops. serves 12.2 million active-duty, Reserve, • Delivering more than $150 million National Guard, Family members, and in supply-chain productivity. AAFES Factoid retirees in 30-plus countries, five U.S. • Expanding our award-winning territories and 50 states. In 2008, we Web site, www.aafes.com, to more than 18 AAFES is a military command operated more than 3,100 facilities; 1,765 million items. name-brand restaurants like Burger King, with a retail mission carried out • Managing a $1.2 billion, five- Starbucks, Subway and Taco Bell; and year program to build unique shopping more than 5,100 concessions. We continue by 43,000+ military and civilian destinations and address the Department of providing a “taste of home” to America’s associates and managers. A Defense’s military transformation initiatives. From 2005 to 2008, we completed 50 See “Commander’s Column,” Page 14 Board of Directors comprised projects valued at $442 million, and 10 of civilians and senior Army and projects at $173 million are now under construction. Air Force military leaders • Improving customer and associate satisfaction scores by 200 and 400 basis oversees operations. points respectively. • Receiving local and national accolades for our groundbreaking employee and supplier diversity, restaurant operations, and sales (See Pages 11 and 13). The • Completing implementation of AAFES Oracle Retail, the sophisticated technology Story that provides us with industry-best 1 2008: A year of The AAFES many ‘firsts’ Story Historic collaborations give customers even greater selections for every room of their homes 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 Wwhether 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 best of the past with number of Apple-authorized dealers from 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 year. and modern sensibility. largest retailer, scored several “firsts” in 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, Ana’s team also expanded our AAFES sales and marketing experts Simply Perfect sales hit nearly $29 entered into a historic partnership with million, 39 percent higher than in successful “electronic roadshows” to place 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. Directorate’s Hardlines team assortments found in larger exchanges. 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 Story “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 company’s global internal print and online working to hroughout our 114-year magazine: history, our associates bring life back have voluntarily left their hen Hurricane Ike hit the to normal for Families and comforts Texas Gulf Coast, millions Tof home to deploy around the world Wof 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. In September 2008, Hurricane Ike, To help the cities, the third most destructive hurricane to towns and people recover 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 much of Galveston Island. area. Associates from From one of our mobile field Texas exchanges jumped exchanges for at least two weeks, associates into action the day after 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 Hurricane Ike relief efforts. from the Ellington exchange, opened to support local troops, members of the Air, Army and Texas National Guards, Marine and Navy Reserves, and the Coast Guard, Authorized shoppers looking for emergency products file in and out of the AAFES mobile field See “Hurricane Ike,” Page 16 exchange.