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86–077 2014

[H.A.S.C. No. 113–70] 

MILITARY RESALE PROGRAMS OVERVIEW 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MILITARY PERSONNEL 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

NOVEMBER 20, 2013 
(II) 

SUBCOMMITTEE ON MILITARY PERSONNEL 

JOE WILSON, South Carolina, Chairman 

WALTER B. JONES, North Carolina 

JOSEPH J. HECK, Nevada 

AUSTIN SCOTT, Georgia 

BRAD R. WENSTRUP, Ohio 

JACKIE WALORSKI, Indiana 

CHRISTOPHER P. GIBSON, New York 

KRISTI L. NOEM, South Dakota 

SUSAN A. DAVIS, California 

ROBERT A. BRADY, Pennsylvania 

MADELEINE Z. BORDALLO, Guam 

DAVID LOEBSACK, Iowa 

NIKI TSONGAS, Massachusetts 

CAROL SHEA-PORTER, New Hampshire 

CRAIG GREENE, Professional Staff Member 

DEBRA WADA, Professional Staff Member 

COLIN BOSSE, Clerk 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2013 

Page HEARING: 

Wednesday, November 20, 2013, Military Resale Programs Overview .............. 1 

APPENDIX: 

Wednesday, November 20, 2013 ............................................................................. 23 

WEDNESDAY, NOVEMBER 20, 2013 

MILITARY RESALE PROGRAMS OVERVIEW 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Davis, Hon. Susan A., a Representative from California, Ranking Member, 

Subcommittee on Military Personnel ................................................................. 2 

Wilson, Hon. Joe, a Representative from South Carolina, Chairman, Subcommittee on Military Personnel ........................................................................ 1 

WITNESSES 

Bianchi, RDML Robert J., SC, USN (Ret.), Chief Executive Officer, Navy 

Exchange Service Command ............................................................................... 4 

Dillon, William C., Director, Semper Fit and Exchange Services Division, 

Manpower and Reserve Affairs, U.S. Marine Corps ......................................... 8 

Gordy, Thomas T., President, Armed Forces Marketing Council ........................ 10 

Jeu, Joseph H., Director and Chief Executive Officer, Defense Commissary 

Agency ................................................................................................................... 7 

Nixon, Patrick B., President, American Logistics Association ............................. 8 

Shull, Thomas C., Director and Chief Executive Officer, Army and Air Force 

Exchange Service ................................................................................................. 6 

Williams, Rosemary Freitas, Deputy Assistant Secretary of Defense for Military Community and Family Policy, U.S. Department of Defense .................. 3 

APPENDIX 

PREPARED STATEMENTS: 

Bianchi, RDML Robert J. ................................................................................. 58 

Davis, Hon. Susan A. ....................................................................................... 29 

Dillon, William C. ............................................................................................. 93 

Gordy, Thomas T. ............................................................................................. 128 

Jeu, Joseph H. .................................................................................................. 80 

Nixon, Patrick B. .............................................................................................. 102 

Shull, Thomas C. .............................................................................................. 70 

Williams, Rosemary Freitas ............................................................................ 31 

Wilson, Hon. Joe ............................................................................................... 27 

DOCUMENTS SUBMITTED FOR THE RECORD: 

National Military Family Association Statement for the Record ................. 151 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

Mrs. Davis ......................................................................................................... 159 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Wilson ......................................................................................................... 163 

(1) 

MILITARY RESALE PROGRAMS OVERVIEW 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, SUBCOMMITTEE ON MILITARY PERSONNEL, Washington, DC, Wednesday, November 20, 2013. 

The subcommittee met, pursuant to call, at 2:43 p.m., in room 

2212, Rayburn House Office Building, Hon. Joe Wilson (chairman 

of the subcommittee) presiding. 

OPENING STATEMENT OF HON. JOE WILSON, A REPRESENTATIVE FROM SOUTH CAROLINA, CHAIRMAN, SUBCOMMITTEE 

ON MILITARY PERSONNEL 

Mr. WILSON. Ladies and gentlemen, the hearing will come to 

order. Welcome to a meeting of the House Armed Services Subcommittee on Military Personnel. 

Today, the subcommittee will examine the military resale programs within the Department of Defense, specifically how the military resale community will continue to provide appreciated benefits 

to service members, their families, and retirees in a fiscally constrained environment. 

The military exchanges, the commissary and the Morale, Welfare, and Recreation programs are acknowledged as highly valuable 

and appreciated benefits that support Active Duty retention, the 

well-being of the military community, and the readiness of the 

force. The commissaries, exchanges, and Morale, Welfare, and 

Recreation programs have long provided extraordinary savings to 

their patrons as well as job opportunities for military spouses and 

families, which I view as critical during the past years of economic 

challenges. 

The continued fiscal pressures on the defense budget have caused 

the Department and services to look at initiatives to reduced appropriated funding for these programs. As Congress debates the devastating reductions to the defense accounts that are associated 

with the sequestration, it is critical that we hear from the Department and the military resale community to reinforce the importance of these programs to the All-Volunteer Force, but also, how 

the resale community is working together to ensure this valuable 

benefit is maintained even in a fiscally constrained environment. 

I remain a strong supporter of the military commissaries, exchanges, and the Morale, Welfare, and Recreation programs and 

will continue to work to ensure these programs continue to provide 

the effective benefits our men and women in uniform deserve. 

I agree with President Obama, who spoke at Camp Pendleton on 

August 7, 2013, where he said, quote, ‘‘Hardworking folks are getting furloughed, families getting by on less, fewer ships available 
2 

for your training exercises, the commissaries your families rely on 

closed a day a week. We can do better than that. That is not how 

a great nation should be treating its military and military families,’’ end of quote. 

I would like to welcome our distinguished witnesses: first, Ms. 

Rosemary Freitas Williams, the Deputy Assistant Secretary of Defense, Military Community and Family Policy, Office of the Under 

Secretary of Defense for Personnel and Readiness; Mr. Robert J. 

Bianchi, Rear Admiral, retired, Chief Executive Officer of the Navy 

Exchange Service Command; Thomas Shull, Director and CEO 

[Chief Executive Officer] of the Army and Air Force Exchange Program; Mr. Joseph Jeu, the Director and Chief Executive Officer of 

the Defense Commissary Agency; Mr. William C. Dillon, the Director, Semper Fit and Exchange Services, Manpower and Reserve Affairs Department, headquarters to the U.S. Marine Corps; Mr. Patrick B. Nixon, president, American Logistics Association; Mr. 

Thomas T. Gordy, president of the Armed Forces Marketing Council. 

Mrs. Davis, do you have any opening remarks? 

[The prepared statement of Mr. Wilson can be found in the Appendix on page 27.] 

STATEMENT OF HON. SUSAN A. DAVIS, A REPRESENTATIVE 

FROM CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON 

MILITARY PERSONNEL 

Mrs. DAVIS. Thank you, Mr. Chairman. I also want to welcome 

our witnesses today. 

And, to Ms. Williams, we are pleased to have you. And I recognize that this is your first testimony before the subcommittee, and 

we certainly look forward to your statement. 

And I know the chairman introduced the rest of our panel today, 

and we certainly welcome all of our witnesses back. They are familiar to most of us. And we are glad that you are here today. 

This is our annual hearing on military resale and Morale, Welfare, and Recreation [MWR] programs. It is important that we hold 

this hearing each year and especially in these difficult economic 

times because the resale programs and associated MWR programs, 

as well, are so important and so valuable to the military community. 

Our Nation has been at war for nearly 12 years, and while the 

pace of deployment and the number of troops being sent into 

harm’s way is decreasing, we know that the demand for support 

services is not decreasing. And, in fact, we see many accounts 

where it is doing just the opposite. Necessities like food and clothing as well as larger programs like marriage counseling, child care, 

transition programs, and alcohol treatment have all increased in 

need. 

The transition to a smaller force and the continued support that 

our military service members and their families will need is important if we are to ensure that the quality of life that they have 

earned is provided for. The reality of the current budget is upon 

us, and efforts to look at eliminating commissary and exchange 

benefits as a way to reduce costs are again being considered. Yet, 
3 

we know that the commissary remains the most valued benefit by 

service members, retirees, and their families. 

And except primarily for second-destination funds, the exchanges 

actually provide a monetary benefit back to its customers through 

the dividends that support MWR programs. And the sad fact remains, however, that budget reviews tend to look only at the bottom line and fail to assess the secondary or even the unintended 

consequences of their recommendations. 

That said, the commissaries and exchanges and MWR programs 

have a fiduciary duty to ensure that they are providing the most 

cost-efficient benefit. Because commissaries are supported by taxpayer dollars and exchanges are supported by service member dollars, both systems need to ensure that they are doing all that they 

can to best utilize the resources that are provided. 

So I look forward to an open and frank discussion on these 

issues. The dedication and the commitment of our military resale 

employees have provided to military families under these ongoing 

and challenging conditions. They have been outstanding, and we 

are thankful for their contributions. 

Thank you so much, Mr. Chairman. I look forward to our witnesses. 

[The prepared statement of Mrs. Davis can be found in the Appendix on page 29.] 

Mr. WILSON. Thank you, Mrs. Davis. 

I now ask unanimous consent that a statement from the National 

Military Family Association be included for the record. 

Without objection, so ordered. 

[The information referred to can be found in the Appendix on 

page 151.] 

Mr. WILSON. Ms. Williams, we will begin with your testimony. 

As a reminder, please keep your statements to 3 minutes. We 

have your written statements for the record. Following your testimony, each subcommittee member will participate with questions 

in rounds of 5 minutes each until adjournment. 

STATEMENT OF ROSEMARY FREITAS WILLIAMS, DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR MILITARY COMMUNITY AND FAMILY POLICY, U.S. DEPARTMENT OF DEFENSE 

Ms. WILLIAMS. Thank you, Chairman Wilson, Ranking Member 

Davis, for your strong support of the quality-of-life programs for 

military members, their families, and survivors. Your leadership 

and emphasis have kept the focus on the programs that help keep 

our military strong and resilient. 

Today, perhaps more than ever, the members of our military 

community need to count on the resolve and commitment you have 

so consistently displayed over the years for the very programs they 

continue to depend on so heavily. 

I am honored and humbled by the opportunity to serve as the 

Deputy Assistant Secretary of Defense for Military Community and 

Family Policy. Although I was sworn in just a little over 4 months 

ago, I bring to this position a passion for those who serve and the 

people who support them. 

My husband served as a marine for 20 years and deployed shortly after we were married, so I feel a special bond with those who 
4 

must endure the heartache of family separations, the worry and 

fear of multiple deployments, and challenges of frequent moves. 

These experiences, as well as my professional work with the Veterans Administration and military family nonprofits, reinforce to 

me the value of the programs that now fall into my portfolio—rather, excuse me, they do not fall ‘‘into’’ them; they fall ‘‘in’’ the portfolio. Excuse me. 

My written statement highlights some major recent achievements within the military family, community and family policy organization. The statement then shifts the focus to the current outlook for us and our resale partners in today’s reduced budget environment. Finally, it provides a quick preview of some preliminary 

results from our Task Force on Common Services as well as some 

other transformational initiatives that hold great potential for our 

future. 

As you well know, these are trying times for our military community. Our people face unique challenges associated with their military service: over a decade of engagement in hostile operations 

overseas; multiple frequent deployments, many for extended periods of time; uprooting the family for a move to a different location 

for the needs of the service member; and the continued uncertainty 

about the budget and funding levels. Our civilian members have 

not been spared: furloughs that cut into the family paycheck, hiring 

freezes, and elimination of pay raises and awards. 

Keeping in mind that sequestration has only been in effect about 

6 months. And without some relief, the Department faces 9 more 

years of steeper funding cuts and ever more unprecedented fiscal 

uncertainty. At the very time of our community’s greatest need, 

these funding cutbacks pose great risk to the programs and services on which our military members and their families depend on 

for resilience. 

Do not get me wrong. We are willing to do our part. My written 

statement shows that we are looking for efficiencies and ways to 

transform our programs to meet these fiscal realities. But we can’t 

expect the service members, past and present, and their families to 

shoulder this burden alone and to meet these challenges with even 

more of their personal sacrifices. 

I look forward to working with this subcommittee to meet the 

needs of our military community, and thank you for your continued 

support. I welcome your questions. 

[The prepared statement of Ms. Williams can be found in the Appendix on page 31.] 

Mr. WILSON. Thank you very much, Ms. Williams. 

And Admiral Bianchi. 

STATEMENT OF RDML ROBERT J. BIANCHI, SC, USN (RET.), 

CHIEF EXECUTIVE OFFICER, NAVY EXCHANGE SERVICE 

COMMAND 

Admiral BIANCHI. Chairman Wilson, Ranking Member Davis, 

and distinguished members of the subcommittee, I appreciate the 

opportunity to appear before you today. 

Maintaining our Nation’s commitment to our military members 

and their families’ quality of life remains a key factor in ensuring 

a strong military and an All-Volunteer Force. As a nonappropriated 
5 

funded entity, it is important to note that NEXCOM [Navy Exchange Service Command] kept faith and maintained that commitment through the recent government shutdown. Navy exchanges 

and Navy lodges remained open, sending a strong signal to our 

service members and military families that their needs had not 

been forgotten. 

The NEXCOM enterprise has broad reach and touches many aspects of Navy life. Every day, our military families around the 

world rely on us for quality products, uniforms, casual dining, hair 

care, auto services, gas, laundry, that touch of home, and more. 

We provide lodging for our military families when they change 

duty stations. For sailors and marines at sea, we provide essential 

items and funds to support their recreational needs. We help sailors and families stay connected with personal calling at sea and 

Internet and cellular services ashore. 

And at overseas locations, NEXCOM delivers the commissary 

and exchange benefit where a standalone commissary is not economical and provides school lunches for the Department of Defense 

education activity. 

Unlike other government programs, we operate as a true business. We have always and will continue to drive internal efficiencies to reduce costs and seek new opportunities to drive top-line 

sales. Recently, we consolidated buildings and automation in our 

Northeast Distribution Center, attriting 50 full-time positions 

while increasing our throughput by 10 percent. Our store lighting 

retrofits are yielding over 9 million kilowatts in energy savings annually, with a cost avoidance of over $800,000. 

Through our partnerships with AAFES [Army Air Force Exchange Service], the Marine Corps, DeCA [Defense Commissary 

Agency], Coast Guard, Veterans Canteen, and our own Navy MWR, 

we will continue to implement joint efforts that reduce costs in our 

programs. 

While we are a nonappropriated funded entity, we do receive limited appropriated funds, and primarily these for overseas support. 

Based on the savings we provide Navy families and our dividends 

that support Navy quality of life, we actually provide a 6-to-1 payback on that appropriated fund investment. 

With the pressures on appropriations, we are concerned about 

potential reductions in appropriated fund support to our programs. 

As such, your continued support for sustaining second-destination 

transportation funding is critical to our ability to serve these families overseas. 

Through our customer satisfaction surveys and feedback on social 

media, we know our military families value and appreciate the benefits we provide. A recent social media posting summed it up best: 

‘‘I like shopping at the NEX [Navy Exchange] because it is a safe 

environment. I like going into the store and being made to feel like 

family.’’ 

We can’t do this alone. I want to acknowledge the dedicated support we receive from our industry partners and from you on the 

committee. 

I look forward to your questions and thank you very much. 

[The prepared statement of Admiral Bianchi can be found in the 

Appendix on page 58.] 
6 

Mr. WILSON. Thank you very much, Admiral. 

Mr. Shull. 

STATEMENT OF THOMAS C. SHULL, DIRECTOR AND CHIEF EXECUTIVE OFFICER, ARMY AND AIR FORCE EXCHANGE SERVICE 

Mr. SHULL. Mr. Chairman, Ranking Member Davis, and members of the subcommittee, thank you for the opportunity to speak 

today. 

Since this is my first appearance before the committee, please 

allow me to introduce myself. I am the son of a career Army officer. 

After graduating from West Point, I served for more than a decade 

as a soldier before embarking on a career in business, primarily in 

retail. In the past, I have served as a CEO of a major retailer, a 

large direct marketing corporation, and a top regional packaged 

goods company. Joining the Army and Air Force Exchange Service 

has been like coming home. There is no greater honor than serving 

those who serve. 

Although we are bringing a fresh approach to the 118-year-old 

exchange benefit, our passion for serving the military family and 

saving the American taxpayer money remains steadfast. 

We have taken a proactive approach to reduce costs. In the last 

17 months alone, the Exchange has lowered overhead expenses by 

$100 million. We have decreased full-time staffing by more than 

3,000 while simultaneously reducing costs related to transportation, utilities, travel, supplies, and personnel moves. Drawing 

upon commercial best practices, dividends to MWR have gone up 

approximately 10 percent, as expenses, especially overhead, continue to go down. 

As we improve efficiencies we continue to exceed shoppers’ expectations. On August 1, the Exchange announced a major investment 

in an enhanced Web site with improved order of fulfillment. Online 

and off, the Exchange is intensifying the presence of national 

brands such as Michael Kors, Ralph Lauren, Apple, Under Armour, 

Estee Lauder, New Balance, and Walt Disney. Thanks to a recent 

agreement with Disney, for the first time in the organization’s history, the Exchange is now offering first-run movies in the continental United States. 

Our associates bring a special skill set and passion to our theaters, restaurants, and stores, and many have a direct connection 

with those they serve. Today, 30 percent of the Exchange team 

identifies themselves as a spouse or other family member; 13 percent are veterans; and 434 wounded warriors serve in our ranks. 

I want to thank my fellow military resale partners, vendors, and 

military support organizations. We stand united with you in our 

common pursuit to enhance the military community’s quality of 

life. 

Mr. Chairman, Ms. Davis, and other members of the subcommittee, please allow me to thank you for the continued support 

that you give us each day. Together, we ensure that wherever service members are, an exchange is there to support them. Our operations increase the combat potential of America’s forces and enhance the probability of mission success for our troops and our 

country. 
7 

I look forward to your questions. 

[The prepared statement of Mr. Shull can be found in the Appendix on page 70.] 

Mr. WILSON. Thank you very much, Mr. Shull. 

And Mr. Jeu. 

STATEMENT OF JOSEPH H. JEU, DIRECTOR AND CHIEF 

EXECUTIVE OFFICER, DEFENSE COMMISSARY AGENCY 

Mr. JEU. Chairman Wilson, Ranking Member Davis, members of 

the subcommittee, I am pleased to update you on DeCA’s progress 

this past year. 

We have been engaged in a number of initiatives to improve the 

delivery of the commissary benefit as well as assisting the Department in improving the quality of life of service members and their 

families. While detailed more fully in my statement submitted for 

the record, those projects include enhancing our sustainability program, revitalizing our construction program, implementing online 

ordering and curbside pickup, and providing a venue for the Department to deploy the Healthy Base Initiative program. 

It has been a year filled with challenges which significantly impacted commissary patrons. However, these challenges demonstrated that the commissary continued to play an important role 

in the economic well-being of our military families. 

A prime example would be what happened on October 1st, the 

first day of the government shutdown. That day was our highest 

sale day ever, totaling over $30.5 million. This amount is double 

our normal business day, with our military families coming to the 

commissary to stock up. With both the Department-wide hiring 

freeze and employee furloughs required to meet sequestration requirements and the recent government shutdown, customer service 

suffered greatly. With DeCA’s high turnover rate of lower-graded 

employees, over two-thirds of our store fell below the level required 

to effectively run the store. While the Department has provided 

hiring freeze relief, the cure was not immediate because of the new 

employee vetting time lag. 

The closure of your stores for 1 day a week for 6 weeks impacted 

customers further. Customer complaints rose by over 50 percent 

and hit an all-time high during the furlough. The recent shutdown 

also hampered commissary patrons, our employees, and our suppliers. 

Although we encountered some challenges associated with the sequestration and government shutdowns, we are forging ahead with 

ongoing initiatives to seek innovative, efficient method of commissary benefit delivery. 

In closing, I would like to thank the members of the subcommittee as well as each Member of Congress for their continued 

support of the commissary benefit. I will be happy to answer any 

questions you may have. 

[The prepared statement of Mr. Jeu can be found in the Appendix on page 80.] 

Mr. WILSON. Thank you very much, Mr. Jeu. 

And we proceed to Mr. Dillon. 
8 

STATEMENT OF WILLIAM C. DILLON, DIRECTOR, SEMPER FIT 

AND EXCHANGE SERVICES DIVISION, MANPOWER AND RESERVE AFFAIRS, U.S. MARINE CORPS 

Mr. DILLON. Chairman Wilson, Ranking Member Davis, and distinguished members of the subcommittee, thank you for inviting 

me here today to discuss Marine Corps exchange and retail programs. 

The Marine Corps Exchange is a vital part of the overall non-pay 

compensation package for marines and their families. We measure 

our success by our ability to provide unparalleled customer service, 

premier facilities, and valued goods and services at savings, while 

also returning a significant dividend to the Marine Corps community. I am also proud to note that nearly 30 percent of our retail 

employees are military family members. 

Marine Corps retail programs are not immune from fiscal challenges, but challenges we believe bring great opportunity. The Marine Corps Exchange aims to execute programs in the most resourceful way as part of our regular business practice. We are assessing our business and support capabilities to increase these efficiencies. We are also collaborating with our sister services whenever possible and leveraging our partnership with industry. Many 

of these efforts have already provided significant cost savings, and 

we look forward to additional opportunities to expand efficiency. 

With Marine Corps Exchange, marines and families can rely 

upon a high-quality product at a fair, competitive price and know 

that the proceeds are reinvested in the community, creating a 

stronger Marine Corps. 

I appreciate the subcommittee’s oversight and continued strong 

support of retail activities, and I look forward to your questions. 

[The prepared statement of Mr. Dillon can be found in the Appendix on page 93.] 

Mr. WILSON. Thank you very much, Mr. Dillon. 

We now proceed to President Nixon. 

STATEMENT OF PATRICK B. NIXON, PRESIDENT, AMERICAN 

LOGISTICS ASSOCIATION 

Mr. NIXON. I like that title, sir. 

Thank you, Mr. Chairman. It is an honor to be here today representing the ALA and our affiliate organization, the Coalition to 

Save Our Military Shopping Benefit. 

The sun never sets on the military resale system. Every day, 

thousands of exchange and commissary employees and industry 

members work hard to take care of our military. It is a partnership 

that brings together the best of the private sector and the best of 

the public sector to care for the best people in the world. 

And this subcommittee can be proud of its support and advocacy 

for a program that serves so many with so much at so little cost. 

And we are grateful to you for fully supporting funding for these 

programs in this year’s budget. 

We owe it to our military people to do the right thing right now. 

The specter of the sequester must be lifted immediately, and 

budget stability must be returned to the Department of Defense 

[DOD]. 
9 

It has been a tough year, particularly for commissary employees. 

They must feel like they live in Antarctica, with hiring freezes, pay 

freezes, funding freezes, and travel freezes, yet they continue to deliver. 

On the exchange front, we are concerned about the unintended 

consequences of sustainability and local procurement legislation 

and the impacts of the Bangladesh Fire and Safety Accord. In addition, it is time to refresh the Armed Services Exchange Regulation 

to better reflect the marketplace, from Internet sales to outdated 

rules on automobile sales. 

And even though the commissary and exchange employees operate in the cold world of budgetary whipsaw, they continue to give 

a warm welcome to millions of patrons every day. We salute them 

for all they do each and every day. 

Today, it is in vogue to talk about efficiency, to talk about hiring 

veterans and military family members, to talk about keep taking 

care of people in a constrained environment. This may be new to 

a lot of defense programs, but it is not new to the military resale 

programs. 

Exchanges and commissaries have been taking major costs over 

the past decade—taking out major costs over the past decade and 

hiring thousands of veterans and family members. Hundreds of 

millions in annual cost have been pared from these programs, and 

managers have it in their DNA to continue to cut cost. Commissaries are sharing in the continuing resolution, sequestration, 

and budget pain and have taken more than their fair share of reductions. 

But that may not be enough to feed the budget beast. Some defense planners want more. They seek to reduce the commissary 

budget far beyond that being asked for any other defense program. 

DOD shouldn’t punish success. That will send the wrong message 

to the rest of DOD. 

Congress established the Compensation Commission to carefully 

and methodically weigh and balance costs. This commission should 

be allowed to do its work and present a sensible and coherent package and roadmap to the administration and the Congress and not 

arbitrarily hack away at any particular program without careful 

analysis and consultation with Congress. 

ALA’s economic report issued earlier this year elucidates many 

of the contributions of these programs with a high return to the 

DOD and the Nation for the resources provided. We don’t fear analysis. We fear no analysis. It is like the Old West hero, Paladin, 

with a twist: Have facts, will travel. 

The military resale program should be emulated, not decimated. 

My prepared statement lists the multitude of reasons that the system must be maintained and allowed to prosper. The President 

said that ‘‘closing commissaries is not the way a great Nation 

should treat its military and their families.’’ We couldn’t agree 

more. 

I look forward to your questions. 

[The prepared statement of Mr. Nixon can be found in the Appendix on page 102.] 

Mr. WILSON. Thank you very much, Mr. Nixon. 

Now we proceed to President Tom Gordy. 
10 

STATEMENT OF THOMAS T. GORDY, PRESIDENT, ARMED 

FORCES MARKETING COUNCIL 

Mr. GORDY. Thank you, Mr. Chairman. And I agree with everything he said. 

Good afternoon, Mr. Chairman, Ranking Member Davis, and distinguished members of the Personnel Subcommittee. And thank 

you for the invitation to offer comments on behalf of the members 

of the Armed Forces Marketing Council regarding the military resale services and the financial benefits they provide to support the 

quality of life of our service members and their families. 

Today, the commissaries and exchanges continue to deliver a 

world-class non-pay compensation benefit to military families. 

While there have been strong headwinds in the form of furloughs 

and diminishing budgets as a result of sequestration and continuing resolutions as well as the government shutdown, the leaders and the associates of the resale systems are to be commended 

for the great work they have done in a very challenging year. 

As we delve into the issues pertaining to military resale today, 

I would like to make it clear that, in the view of the Armed Forces 

Marketing Council, the commissaries and exchanges are not broken. In fact, they do their part, in partnership with industry, to become more efficient so that they may lower costs and find ways to 

continue providing significant savings to military families. It is the 

nature of the business that they do so. 

However, due to declining budgets, they are being asked to consider significant cuts to their appropriated support that go beyond 

efficiencies to a real degradation and/or elimination of the benefit 

for military patrons, particularly those in CONUS. 

While we understand the plight of the Department of Defense 

and the budgetary challenges it and the military services face, we 

are also aware and sympathetic to the fact that reductions in taxpayer dollars will get passed on to the military families in the form 

of higher prices or a complete loss of benefit. In other words, it 

would be taxing military families for the delivery of their own benefit or breaking faith with them. 

There are two numbers that I would like you to keep in mind today. The first is $600 million. That is the approximate level of 

appropriated support proposed to be cut from DeCA’s budget, resulting in the closure of CONUS stores as called for in the Resource Management Directive, plus the amount of overseas shipping that some had discussed earlier in the year from being cut 

from the exchanges. The second number is $2.1 billion. That is the estimated amount 

of non-pay compensation military families would lose if those cuts 

and associated closures were to be implemented. 

We are very concerned that the short-term budget decisions 

made today that degrade or eliminate the resale benefit will have 

adverse long-term impacts on our military families as well as our 

ability to retain a ready All-Volunteer Force. 

Chairman Wilson, thank you once again for the opportunity to 

provide insights on military resale today, and I look forward to 

your discussion. 

[The prepared statement of Mr. Gordy can be found in the Appendix on page 128.] 
11 

Mr. WILSON. Thank you very much, Mr. Gordy. 

And we will begin now with questions. And Craig Greene, we 

note that he will maintain the time carefully, including on me. 

As we begin, normally, we hear from you. I can give you a report, 

multigenerational. My mother-in-law, a very proud Marine widow, 

and my wife, a very proud National Guard retiree wife, were at 

Fort Jackson last week. It was world-class at the commissary and 

very meaningful. 

And then, for our family, I particularly appreciate the overseas 

capability. And I wish more Americans understood how important 

it is to have a system that is domestic and overseas. And we have 

part of our family, Navy, serving in Southern Europe. And then 

today is a special day. My youngest son is celebrating his birthday 

in Central Asia. So it is—but I know this, that they have capabilities of having a very positive lifestyle due to your service, so I want 

to thank you. 

Mr. Jeu, we have been told that an independent study was directed as part of the Resource Management Directive [RMD] to 

propose changes to the Defense Commissary Agency operations 

that would accommodate an operating cost reduction as well as focusing on commissary operations, primarily on overseas, reducing 

appropriated funding. 

What is the status of the study, and when will the Department 

be able to share the results? 

Mr. JEU. Mr. Chairman, with the sequestration, the Department 

is reviewing all of its programs, and nothing, including commissary, is off the table. 

And I can tell you, the Department has not made its decision regarding the RMD, and I believe it is inappropriate for me to discuss any of the details of the RMD at this time. 

Mr. WILSON. Well, as soon as you can release it, please let us 

know. Because, again, I agree with Mr. Gordy, this is a world-class 

provision, appreciation of our military families. 

Another question, Mr. Jeu: What initiatives has the Defense 

Commissary Agency taken to become more efficient in anticipation 

of reduced appropriated funding? 

Mr. JEU. Mr. Chairman, DeCA has a long history of becoming a 

model agency. Over the years, we have taken an effort to become 

more efficient. And, in fact, over the past 20 years, we were able 

to reduce our funding requirement by $700 million and, also, we reduced our inventory by $500 million. 

Some of the examples are we eliminated warehouse functions 

and we went directly to vendor-delivered, relying on the private 

sector. By doing so, we were able to eliminate positions as well as 

eliminate stock funds. Or the other one would be centralizing accounting, voucher functions and automating. 

And so we have a long history. Even then, every day we are looking for more and more and greater efficiency. And so I think we 

are very proud of what we have done. 

And a final thought is, we do not have any low-hanging fruit. I 

think there is some misperception out there; perhaps there is some 

magic out there for DeCA to do. Sir, all those are gone, and what 

we have left is minor efficiencies. 

Mr. WILSON. Thank you very much. 
12 

And, Mr. Nixon and Mr. Gordy, has there been dialogue with the 

private-sector resale community to help increase efficiencies as a 

resale community to ensure the commissary benefit is sustained? 

Mr. NIXON. Yes. And, Mr. Chairman, this is really a model for 

a partnership between the public sector and the private sector for 

looking for efficiencies in operations. And, continually, there are 

standing committees that work with the leadership of all of the resale commands to look for opportunities to improve supply-chain 

efficiency. 

And particularly, most recently, a blue-ribbon panel to look at 

supply-chain efficiencies has been established, led by David Sisk 

from Procter & Gamble. It is working with each one of the resale 

commands to identify opportunities to bring best business practices 

into the military resale business channel and drive efficiencies. 

But it is important to note that, because these operations work 

as businesses, every decision they make is based on efficiency and 

effectiveness. It is in their DNA, and they do it each and every day. 

This is just an additional opportunity to partner with them to look 

for additional opportunities. 

Mr. GORDY. I would just like to also add that the memberships 

of the ALA, all of our members are members of the ALA, but our 

members are specifically brokers who represent manufacturers. 

And the brokers themselves hire employees who work in the stores 

so that DeCA does not have to hire employees. And so many of the 

folks who stock the stores are paid for through the private sector, 

and our folks are part of that solution. 

And these are efforts that have been going on for decades; these 

are not new. And this is to help DeCA find ways that it can help 

reduce its appropriated support. And so when you take a look at 

the commissaries and the exchanges, it is clearly a public-private 

partnership so that this benefit can be delivered in a world-class 

way. 

Mr. WILSON. And with the technological advances of barcode, QR 

code, it is really exciting to me to see what can be done for military 

families with greater efficiency worldwide. And, indeed, I have a 

personal interest in that. 

At this time, we will proceed to Ms. Davis. 

Mrs. DAVIS. Thank you, Mr. Chairman. 

And, Ms. Williams, again, it is good to have you here. 

I know from the remarks and your presentation that there has 

been a review of military family support programs under the Task 

Force on Common Services. And you mentioned a number of areas 

of interest there. Could you very briefly, I guess, summarize for us 

some of the preliminary findings? 

And one of the things I found interesting about that, it sounded 

like there are some changes that are being recommended, and at 

the same time people are saying, oh, why haven’t we done this before? You know, we could have brought folks together and managed 

this better. 

Could you talk a little bit about that task force’s findings? 

Ms. WILLIAMS. Yes, ma’am. 

As you mentioned, the Task Force on Common Services, it was 

established to review the total cost of providing common services 

for service member and family support programs DOD-wide. So it 
13 

is really not the installation level, ma’am, it is more of the global 

look, how we deliver and not what we deliver, if you will. 

They concluded the 5 months of the weekly meetings and really 

intense study of the overhead functions. And at the end of the day, 

we are compiling a final report on the discussions, if you will. And 

within that report, which will be ready by the end of this year, we 

will have a good sense of the recommendations well laid-out. 

Concurrent to that, if you will, we have launched the data-gathering piece. So, respectfully, if you and I decide it is a good idea 

to combine something, we still need the data to prove the business 

case. So by bringing all this data in concurrently and building a 

business case, it is an easier sell and an easier way to move forward on these recommendations if they all stick, if you will. 

That report, where it is the business case, will be done this time 

next year. It is rather intensive. They looked at 15 separate functions. One good example would be in fact, this one has already 

launched. There were a lot of ‘‘a-ha’’ moments in the meetings, as 

I understand it. The services have agreed to create a common 

standard chart of accounts. So it is sort of dry stuff. 

But at the end of the day, if we can get all the services together 

in one effort, there are some significant efficiencies there. And that 

is what we are looking at, ma’am, is efficiencies. 

Mrs. DAVIS. Can you actually evaluate which of those efficiencies 

are the ones that are going to help make your case more than perhaps others? 

Ms. WILLIAMS. Yes, ma’am. It is a very exciting time, actually. 

And it is the first time the services have gotten together and really 

taken a hard look at these overhead functions. 

And they—we all face the same battle. You know, we are cut 

down to bone. We have no—we have nothing left to cut. So if we 

are going to limit the impact on the end-user, our service members 

and families, in some cases retirees, how do we do that? How do 

we deliver these with minimum impact? There is going to be impact, no question, but how do we minimize that impact? 

So, yes, ma’am, we have great confidence in that. 

Mrs. DAVIS. We have a hard time when it comes to scoring items 

trying to show that in the long term we actually save money although in the short term perhaps there is some additional cost 

there. 

Ms. WILLIAMS. Yes, ma’am. And we really are looking at it for 

efficiencies first, and the business case, obviously, the money follows, as well, the savings follow, as well. 

Mrs. DAVIS. To the rest of you, one of the things that frustrates 

me is making the case to our colleagues that, in fact, we actually 

have to get our act together here in Congress and deal with this 

budget in order for you to facilitate and to be able to prepare for 

the work that we expect you to do, that is being done every day. 

And we know the charges that you have and the commitment that 

you have to doing that properly. 

How can you, I guess, encapsulate, sort of, the need to get that 

done so that the benefits that we provide our men and women who 

serve and their families actually reaches them? If you had—I guess 

it is sort of the elevator speech. I mean, what is it that you want 
14 

Members of Congress to know that is going to kind of move them 

to understand that we need to get our act together here? 

Ms. WILLIAMS. I will take a stab at it, if I may, ma’am. 

A couple of things. Now more than ever, our military and their 

families need the programs and services we provide. After 12 

years—and now more and more are coming home, which means 

there is going to be greater need for these programs and resources. 

And it is only slightly ironic that we are talking about pulling them 

back. We have nothing left to cut. 

So when we talk about daycare, for instance, here is a really 

solid example. Many of our installations and bases are in places 

where quality daycare is just not available. And quality daycare is 

not just about people going to work. It is also about respite. It is 

about taking care of the family, and resiliency, the mental and 

health—mental and physical well-being of our community. 

In the general public, in the general population, our childcare 

centers are—8 to 10 percent are nationally accredited. In the military, 97 to 98 percent are. It is remarkable. It is considered the 

gold standard for child care by organizations such as Child Care 

Aware. 

Our fitness programs are not just about keeping fit and passing 

the PT, which, of course, is very important; it is togetherness for 

families. It is burning adrenaline for those hard-charging single 

members that maybe can get themselves in a pickle out off the installation if they are not careful, if they are not burning off that 

energy. And these are state-of-the-art. So when you are—so there 

is not only—it is not just a readiness issue and a resilience issue; 

this is also a national security issue and a moral imperative, if you 

will. 

And we can lay that out in a number of different ways for you, 

if you would like. I know National Military Family Association has 

done a remarkable job capturing some of those anecdotes and some 

of those situations on the installation level, and they are quite powerful, ma’am. 

Mrs. DAVIS. Thank you. 

Mr. WILSON. Thank you, Mrs. Davis. 

We now proceed to Congressman Joe Heck of Nevada. 

Dr. HECK. Thanks, Mr. Chairman. 

Thank you all for being here. And as someone who has used commissaries and exchanges throughout Europe, Iraq, Afghanistan, 

and all across this country, I can attest to what a valuable service 

and benefit they are. In fact, we still shop at the Nellis Commissary once a month. So it certainly is an important benefit. 

But, with that, I mean, as you all have clearly stated, we face 

fiscal challenges. And while nobody wants to, as has been said, you 

know, balance the budget on the backs of our service members or 

our veterans, there are going to be some hard decisions to make. 

And so, Mr. Jeu, I would ask you, you know, some of the ideas 

that have been thrown about specifically for the Defense Commissary Agency is increasing the surcharge from 5 percent to 10 

percent or going to an enhanced commissary where you may have 

some other items that you could sell at a profit to help offset expenses or eliminating the second-destination transportation 

charges and increasing prices by 2 to 3 percent to cover those costs. 
15 

Do you have an opinion on those three potential items to help offset the costs? 

Mr. JEU. First of all, I have to say that the commissary benefit 

is part of non-pay compensation package, and it is valued by military members as the number one or number two. 

All those options you mentioned, while it is viable, it has direct 

impact on military family members. Because what that will do is 

it will shift cost burden onto our military families. So, in each of 

those scenarios, the savings will go down by whether 5 percent or 

3 percent, whatever the percentage you want to change, savings 

will go down by that much. So, therefore, the burden has now shifted—— 

Dr. HECK. But I guess some could argue that that small—and I 

am not saying I am pro any of these. But, you know, if we, let’s 

say, increased the surcharge from 5 to 10 percent. In your written 

testimony, you say that a family of four saves, on average, about 

$4,500 a year at the commissary. So they would save $4,275 or lose 

$225 a year. Sure, you know, to an E–3, E–4, that is going to be 

a big thing. 

Mr. JEU. Yes, sir. 

Dr. HECK. But to higher ranks, it wouldn’t necessarily be a big 

thing. And if that shift is what allows the programs to continue to 

function, we have to look at the cost-benefit of each one of these. 

And I would encourage you to take that kind of a perspective. 

Mr. JEU. Absolutely, I think senior leaders are taking all this 

into consideration. Yes, sir. 

Dr. HECK. To the exchange directors, somebody has to help me 

understand why we have to have three, you know, separate exchange directorates. And just like we have Defense Commissary, 

why don’t we have Defense Exchange? 

Admiral BIANCHI. Sir, I think the primary reason that we operate in this manner is that we are, at least in my case, I am an integral part of the Navy. I am an Echelon 3 command under the direction of the Secretary of the Navy, and I am involved in more than 

just retail. While we have the retail component, I also am part of 

the messaging, the strategic messaging of the Department, the 

family and personnel readiness aspect. And so I believe if you 

asked my senior leadership, they would say that I am woven into 

the fabric of the Navy leadership and Navy mission readiness. 

That being said, this question has been raised many times, and 

we have undertaken and we are constantly in the process of looking at areas where we may be able to have cooperative efforts 

where we can save money. There are numerous examples I could 

state for you where we have joint contracting efforts and so forth. 

But I think the bottom line is that we each are optimizing our 

operations. And just like you wouldn’t necessarily kludge Ford and 

GM together and necessarily get a better organization out of it, I 

think this allows us to meet the needs of our service members 

while still maintaining operational efficiencies cooperatively without having to create one mega organization, so to speak. 

Dr. HECK. Any of the other exchange reps want to just ditto it, 

or do you have something else to add on that issue? 

Mr. DILLON. Yes, sir. I would just like to offer that, from the Marine Corps standpoint, you may or may not be aware of the fact 
16 

that we already are a combined operation. Not only do I have responsibility for the exchange, but I also have responsibility for 

MWR programs. 

Years ago, we consolidated those functions so that we could become more efficient. All of our back-office functions serve both the 

exchange as well as the MWR programs. So we have taken that 

step to become as efficient as possible. 

We are looking at additional reductions in efficiencies and overhead as I speak today. But as part of the studies that we have done 

in the past, actually from a Marine Corps standpoint, to combine 

the operations it would actually cost us more money than it does 

to operate our exchange and our MWR today. 

Dr. HECK. Thank you. 

Thanks, Mr. Chair. Yield back. 

Mr. WILSON. Thank you, Dr. Heck. 

We now proceed to Congresswoman Madeleine Bordallo of the 

beautiful territory of Guam. 

Ms. BORDALLO. Oh, thank you very much, Mr. Chairman. I always appreciate that because Guam is a small place and it is not 

mentioned very often. 

I want to thank you for calling this. I remember going to the 

hearing last year, same—I think you have an annual hearing on 

this. 

And I want to thank all the witnesses for their testimony today. 

I am going to focus on commissaries and exchanges. And being 

brought up on Guam, I visited commissaries and exchanges for 

many, many decades. And most recently on travels, a CODEL [congressional delegation] to Australia and Singapore, I was able to go 

into—we had a few minutes before boarding the plane to come back 

to Washington, so we visited a commissary and the exchange there. 

And, believe me, you have made a great deal of progress from the 

very first days. Now you see all these displays and merchandise 

and eateries, all very up-to-date. I saw those luxury goods. I was 

tempted. 

And so, Mr. Jeu, I think this question would be to you. And I 

have noticed that you put out a policy—Director’s policy here. I am 

going to ask you, I am aware of the policy on sustainability. Now, 

while I appreciate your efforts to develop this policy, I did notice 

specific goals and targets for the acquisition of sustainable products. 

So can you please comment on how your agency intends to monitor any objectives you may have in place to provide fresh and 

healthy products to military families and how your agency will 

maintain awareness of these goals across the many individual commissary stores? 

Also, could you please comment on the criteria used to determine 

when DeCA will choose to pursue locally grown products? In the 

last NDAA [National Defense Authorization Act], I introduced a 

green grocery amendment. And so I am wondering, how is this 

going and how much of this policy have you implemented so far? 

Mr. JEU. Okay. I think that, in terms of a study, I believe this 

falls under another office. 

But in terms of our purchase through local, we try to buy locally 

whenever it makes sense. We look at price, quality, and customer 
17 

preference. And I say price because, particularly in overseas, it is 

a little bit more sensitive in overseas area, and particularly like 

Guam as well, because the Congress decided that cost of goods 

overseas should be no higher than cost of goods in U.S. So that is 

why we receive a second-destination fund. 

And so, especially overseas, including Guam, we look at price as 

well as quality and customer preferences, but, whenever possible, 

we try to buy locally. So, in Guam’s case, we do buy from 15 local 

vendors from the local community for items such as bakery items 

or snack items, some miscellaneous drinks, and so on. So we—— 

Ms. BORDALLO. Vegetables and fruits? 

Mr. JEU. In limited cases, but we do encourage those. And we encourage not only in Guam but elsewhere throughout the U.S. Buying locally does make sense. 

For example, produce particularly. I was at Fort Jackson commissary just last week. And when I was there, I met W.P. Rawl 

& Sons. And they were there, and they were demonstrating their 

produce, cooking and so on. And I met their third-generation farmer, and he was so thankful for DeCA because we are buying locally. 

And he said he is selling all the greens to the commissary and not 

only at Fort Jackson but all the other commissaries in South Carolina. 

We do the same thing on seafood. We try to buy locally. And, in 

fact, on the domestic seafood, sales went up by 6.6 percent. That 

is far outpacing the sales from other sources. 

So, to summarize, really, we do try to buy locally whenever possible, considering all those factors: quality, price, and customer 

preferences. 

Ms. BORDALLO. Thank you, Mr. Jeu. I really appreciate that. I 

am very grateful. 

But, Mr. Chairman, I would like to find out—do you have—I noticed you mentioned some statistics there, numbers and how many 

farmers and so forth. And I think you particularly mentioned 

Guam. 

Would there be some way that you could provide us a report on 

how it is going across the Nation? Would that be too difficult? You 

said—— 

Mr. JEU. We have 15 VAT [value-added tax] vendors, and I could 

give you a list of those. And there is amount and all those. 

Ms. BORDALLO. Right. 

Mr. JEU. Yes, I could do that. 

Ms. BORDALLO. I think the committee would appreciate to see 

how this program is progressing. So if you could provide that. 

[The information referred to was not available at the time of 

printing.] 

Ms. BORDALLO. And thank you, Mr. Jeu, very much for your comments. 

Thank you, Mr. Chairman. I yield back. 

Mr. WILSON. Thank you very much, Ms. Bordallo. 

And we have a special Member, Congressman Brad Wenstrup. 

He is doing his part for a multigenerational commissary and exchange. He has a brand-new baby at home. 

Congressman Wenstrup of Ohio. 

Mr. WENSTRUP. Thank you, Mr. Chairman. 
18 

Thank you all for being here. 

And, you know, I will say, as a service member—I still serve in 

the Reserve—that, you know, the commissary and the PX [Post Exchange] is—there is some morale value to that, I truly believe that, 

for our troops. I think it is appropriate to be affiliated with MWR. 

And it also gives, I think, people, military families, an opportunity 

to shop like the rest of America even when they are not in America, and I think that there is some benefit to that, obviously. 

Just a couple of questions. You know, as I look at stores like 

Walmart that are comprehensive, have everything from clothes to 

groceries, it is usually in one building, and so many times on our 

bases we are in two separate buildings. Is there a history to that 

or is there a strategy to that, to why we typically have two buildings between the exchange and the commissary itself? Does anyone 

know? 

Mr. GORDY. I believe the law, title 10, requires the operation of 

separate commissaries and exchanges, and that may be the history 

there, sir. 

Mr. WENSTRUP. Yeah, I would be curious on that because it 

seems, as we are looking for places of savings, especially in the future, if we can combine them into one facility rather than two separate facilities. Plus, it makes shopping a little bit easier. I mean, 

I think Walmart has figured it out, right? 

And the other question I have is with the kiosks that we often 

see. What is the arrangement with them? Are they just leasing 

space? A percentage of profits? How does that work when we have 

these outside vendors that have their own kiosk within the facilities? Does anyone know? 

Admiral BIANCHI. Yes, sir. We, at least for the Navy Exchange, 

we basically set up short-term concession arrangements with them. 

Typically, it is vendor-owned inventory, and we get a—we negotiate 

a percentage, a commission percentage, with them. It allows us to 

perhaps bring in sometime some niche categories or something and 

offer variety, excitement to the shopper. 

So what you will usually find, I think, in most of our exchanges 

is these concessionaires will rotate through so that we provide variety, but we are negotiating favorable commissions with them. And 

that goes into our bottom line, you know, which drives the dividend. 

Mr. WENSTRUP. Is that the same with the chain food court? 

Admiral BIANCHI. Yes, sir. Well, the models are different there. 

We have, just like my counterparts here, some of those we run organically, and others are concessions with, you know, whether it is 

Subway or other vendors, so that there is a combination there. 

Mr. WENSTRUP. And do they lease the space, or is it all commission? Or does it vary? 

Admiral BIANCHI. I can only speak for—I know in the Navy, we 

provide the space. So, basically, we give them a white box, and 

they come in and perform under contract, yes, sir. 

Mr. WENSTRUP. All right. Thank you very much. 

I yield back. 

Mr. WILSON. And thank you very much, Congressman Wenstrup. 

And we will proceed for a second round. 
19 

And, for myself, Ms. Williams, how does the risk of reductions to 

the second-destination transportation cost increase if the Department of Defense must comply with the cuts associated with full or 

partial sequestration? 

Ms. WILLIAMS. Sir, so I understand your question, are we—you 

are talking about possibly cutting second—— 

Mr. WILSON. Destination costs. 

Ms. WILLIAMS. Very well. Okay, thank you. Thank you for the 

clarity. 

We have continually focused on improving efficiencies with the 

transportation costs through efficient use of transportation modes, 

cooperative efforts among the services. And they can explain a little 

bit more about those efficiencies, sir. 

Frankly, the Department’s stand is that DeCA and the military 

services are complying with the statutory requirement to fund the 

expenses of transporting commissary and exchange supplies overseas. Further, the Army reports that second-destination transportation is fully funded through the Future Year Defense Plan fiscal 

year 2019, and we believe the other services have made similar 

commitments, sir. 

And, with that, I would defer to the directors. 

Mr. WILSON. Thank you. 

In fact, Mr. Shull, Admiral, Mr. Dillon, any comment? 

Admiral BIANCHI. Yes, sir. I would offer, as Ms. Williams stated, 

second-destination transportation is obviously a critical element in 

delivering this exchange benefit. 

And I believe the ability to have the fully funded account enables 

us to provide these comparable products and assortments overseas. 

It is not only an important morale factor, but it is also a necessity 

in many areas where these types of goods aren’t available, like in 

Bahrain and Djibouti, for example. 

But I would also offer to you it is an efficient and effective way 

to provide the merchandise. Because if you think about it, the kids 

and families overseas, they need to provide clothes for their children. They need shoes, they need other goods. You know, we can 

ship it economically. We can serve, in essence, as a distribution 

node for those products. 

If you think about thousands of overseas folks going online and 

ordering their own items and the effect that that has on the military postal system, you know, it is kind of going to be a pay-menow or pay-me-later. You are going to spend more money shipping 

it individually than you can if we bring, you know, containers of 

jeans and so forth overseas. 

So we believe we are efficient with our second-destination transportation [SDT] dollars. We have cooperative efforts ongoing right 

now with DeCA, with AAFES for van stuffing. We have saved 

money over the years. 

But, overall, I believe the loss of that would result in either having to raise prices for products for those stationed overseas, and 

that would drive COLA [cost of living allowance] rates up, so there, 

again, you are driving a cost in a different account but nonetheless 

it is a higher cost, or it would force us to rationalize our assortments, which I think would be going against congressional intent, 

which is why the statute was put in place, I believe, back in 2006. 
20 

Mr. WILSON. Thank you. 

Mr. SHULL. Mr. Chairman, let me add to Admiral Bianchi’s remarks. I fully concur with what he said. And I want to add, we 

were asked by the Army to take a very hard look at SDT this last 

year. And, of course, I am new to the exchange, having served for 

a number of years as a soldier and am now a retailer for 28 years, 

in restructuring, coming into the exchange system, I took kind of 

a different look at it. 

We were able to reduce costs of SDT by about $20 million this last year, and we project another $10 million. But that is really the 

slack in the system, as I would describe it. That is the inefficiency 

that we—partly we allowed to occur as we ramped up to serve in 

a combat environment. Now that we are drawing down, there were 

some efficiencies to be gained. 

For example, shipping via surface versus air for various products 

where, in the contingency in Europe, we needed to get product in 

quicker to serve those who were in harm’s way. And so, now that 

we are moving into more of a peacetime environment, we were able 

to look at that very rigorously and able to reduce it. 

But we are at the point where it is efficient, in my view. And as 

Admiral Bianchi said, if we take more money out of the SDT support at this juncture, we will be risking readiness and resiliency 

and possibly having to increase prices and change the product mix 

that we provide locally in terms of a taste of home and having the 

right mix of product from the United States. 

Mr. WILSON. Thank you. 

And Mr. Dillon. 

Mr. DILLON. Yes, sir, I can only agree with what my partners 

here have to say, first of all. 

Secondly, we enjoy today because we are the small one on the 

block, and we enjoy the cooperative efforts that we have today. We 

generally ride often with shipments for either AAFES or for NEX, 

especially. We have a lot less of an overseas requirement than they 

do. And so the benefit would be significant to us, as well, if it were 

to be cut because we are enjoying that savings right now in 

partnering with the other services. 

Mr. WILSON. You all have brought up some terrific points. Thank 

you so much. The postal, that is really on point. 

Mrs. Davis. 

Mrs. DAVIS. Thank you, Mr. Chairman. 

And I know my colleague earlier mentioned bringing variety, you 

know, why we have the kiosk and what those arrangements are. 

And, certainly, we want to have that variety. 

But I wanted to mention and ask Mr. Shull, the—my understanding, at Fort Bliss Lifestyle Center, they brought in a dollar 

store. And so, in many ways, this store is competing with other opportunities that our military families have to spend money that 

brings money back to Morale, Welfare, and Recreation. 

You know, how do we deal with this issue where we have a potential competitor against the military operations? How do you 

make those decisions? 

Mr. SHULL. That is a very good question, ma’am, and we are 

looking at that now. We only have one Dollar Tree location. It is 

in Fort Bliss. It is in the Lifestyle Center. We have a different busi-
21 

ness model there at the Lifestyle Center, where we do bring out— 

through a broker, we fill the space. And, in this instance, we 

worked with a broker to fill some vacant space with a Dollar Tree. 

We are going to review that. We didn’t know that—part of the 

problem is, when you do that, when you work through a broker, 

you don’t necessarily have full control over the merchandise assortment. So we are reviewing that merchandise assortment to make 

sure that it does not conflict with our sister agencies or with us, 

in terms of offering. We believe there is something like 31 items 

that may compete with the commissary. We are going to review 

that, and I would like to ask to be able to get back to you on that, 

ma’am, in terms of the detail. 

[The information referred to can be found in the Appendix on 

page 159.] 

Mr. SHULL. But remember, it is one location. We have 3,700 facilities, and this is one location. We will not proceed to broaden the 

footprint of that kind of concept because of the fact that we just 

recently learned there may be some conflict with the offerings of 

DeCA and our sister exchanges and even for our own offering. 

But, again, this is a different business model. It is in one location. We are going to look at that Dollar Tree and evaluate whether 

we should have it in the mix of our—both in terms of assortment 

as well as facilities. 

Mrs. DAVIS. Uh-huh. 

Do you ever hear also from DeCA or on other occasions where 

perhaps it is not a Dollar Store but it is an entity that is competing 

in some way with something, I guess fairly basic, that is being 

offered? 

When I think of a kiosk, I think of something different, special 

that comes in, that you have decided at the holiday time or, you 

know, at some point would be a benefit to families to have access 

to. But I can imagine that there also must be others where there 

is really a competition there. 

Mr. SHULL. There could be, ma’am. I am not aware of any others. 

We are very diligent, working through the Cooperative Efforts 

Board, as a team here to make sure we don’t compete with one another or bring in businesses that might compete with our own business. 

Mrs. DAVIS. Right. Right. 

Mr. SHULL. We do need to look at the Dollar Tree issue. This is 

the first time this has come up in my 18 months, and we will take 

a very serious look at this and make sure it doesn’t in any way 

compete with, particularly, a commissary. 

Mrs. DAVIS. Okay. Thank you very much. Appreciate it. 

Ms. WILLIAMS. And, ma’am, if I might add, there is a great deal 

of transparency with the concessions and the PPVs [public-private 

ventures], and all of the directors are quite open in the dialogue. 

The Dollar Tree, in particular, is in internal dialogue right now, 

and we hope to have resolution shortly. 

Mrs. DAVIS. Uh-huh. Great. Thank you. 

And thank you all for trying to address the efficiencies. Obviously, when we come back here next year, it is going to be good 

to know, you know, was there something in the past year that oc-
22 

curred that really made a difference, that was a new innovation in 

the efficiency area, because we obviously need to find those. 

Mr. Jeu. 

Mr. JEU. If I could add just one more thing, I think that we do 

work closely together, between commissaries and exchanges. And I 

believe when we complement each other, I think it brings strength 

to the resale system. I think when we compete, which we do not, 

then it does not. I think it brings system weaker. 

So, fortunately, all of us work together collectively to have a complementary system. And I think we are doing that. 

Mrs. DAVIS. Thank you. 

Mr. WILSON. And, again, thank you very much. 

And thank you, Mrs. Davis. 

And I do appreciate the final comment, a complementary system 

which is beneficial to military families. 

There being no further business, we are adjourned. 

[Whereupon, at 3:48 p.m., the subcommittee was adjourned.] 
A P P E N D I X 

NOVEMBER 20, 2013 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

NOVEMBER 20, 2013 

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DOCUMENTS SUBMITTED FOR THE RECORD 

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WITNESS RESPONSES TO QUESTIONS ASKED DURING 

THE HEARING 

NOVEMBER 20, 2013 

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RESPONSE TO QUESTION SUBMITTED BY MRS. DAVIS 

Mr. SHULL. Staff from the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics met with committee staff to relay our concerns and 

to ensure that the language included in Section 713 of the National Defense Authorization Act for Fiscal Year 2014 was both acceptable to and achievable by the Department. [See page 21.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

NOVEMBER 20, 2013 

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QUESTIONS SUBMITTED BY MR. WILSON 

Mr. WILSON. Has the Department of Defense re-opened discussions on consolidating exchanges? If so, what appropriated dollar savings does the Department garner from this initiative? Mr. Shull, Mr. Bianchi, and Mr. Dillon, has there been further discussion on developing hybrid stores selling merchandise and groceries, similar to Walmart and Target? Is this something that should be explored? Mr. Nixon 

and Mr. Gordy, what are your perspectives regarding an exchange consolidation or 

developing a hybrid model? 

Ms. WILLIAMS. No, the Department has not re-opened discussions on consolidating 

exchanges. Finding more effective and efficient ways to operate is critical, and we 

will continue to seek efficiencies within the military resale systems. 

Mr. WILSON. Has the Department of Defense re-opened discussions on consolidating exchanges? If so, what appropriated dollar savings does the Department garner from this initiative? Mr. Shull, Mr. Bianchi, and Mr. Dillon, has there been further discussion on developing hybrid stores selling merchandise and groceries, similar to Walmart and Target? Is this something that should be explored? Mr. Nixon 

and Mr. Gordy, what are your perspectives regarding an exchange consolidation or 

developing a hybrid model? 

Admiral BIANCHI. NEXCOM is neither aware, nor is a participant in discussions 

for developing hybrid stores selling merchandise and groceries similar to Walmart 

and Target. These commercial formats benefit from one-stop shopping and cost 

synergies driven by an integrated business strategy with a hybrid concept as the 

end state. This is unlike military resale where commissary and exchange stores are 

mature businesses operating independently. Creating military resale hybrids would 

require significant investments. For example, commissaries and exchanges are often 

not co-located on installations nor operate on similar information technology platforms. Consequently, military resale would require significant capital investments 

in construction, assuming available federal land, as well as investments in technology and other areas to retrofit and re-purpose stores to a hybrid model. Similarly, using only one of two existing separate stores where the commissary and exchange are apart, would require reducing available exchange and commissary products thereby generating business risks while diluting the current non-pay compensation resale benefit. 

Navy has successfully operated a limited number of hybrids in overseas locations—NEXMARTs—which sells both exchange and commissary products. 

NEXMARTs success is driven by their creation as hybrids with appropriations for 

the commissary portion of the store. Less clear in the question is whether an explored hybrid model will be wholly non-appropriated funded, in which case price increases would be needed to support the model. This would change and dilute the 

current resale non-pay compensation benefit. NEXCOM does not believe hybrid 

stores, writ large, are a viable option to be explored for the current commissary and 

exchange benefits. 

Mr. WILSON. How many lifestyle centers have been completed and what is the occupancy rate? What type of stores are occupying the life style centers? Are any of 

them in direct competition with the exchange store or the commissary for products? 

Mr. SHULL. Construction on one Lifestyle Center, Freedom Crossing at Ft. Bliss, 

has been completed. Its occupancy is currently 83%. The center is comprised of a 

variety of operations including AAFES direct operations such as the Exchange, 

name brand fast food operations, and traditional concession activities. Also included 

are dining and entertainment operations with brands such as The Grand Theater, 

Buffalo Wild Wings, and Texas Road House. In addition, there are complementary 

retailers such as Under Armour, Things Remembered, Game Stop, Patriot Outfitters, Dollar Tree, and others. All products sold complement the Exchange and Commissary stock assortments. 

Mr. WILSON. What is the feasibility and impact of the commissary operating 

under non-appropriated funds instead of appropriated funds? Will DeCA still be able 

to provide savings to military patrons? Right now the commissary provides approximately 30% savings to patrons, can those savings be reduced to 25%–28% and, if 

so, what actions would need to be taken? 
164 

Mr. JEU. Currently commissaries sell merchandise at cost plus a 5% surcharge. 

The surcharge use is limited to building and maintaining commissaries as well as 

commissary equipment purchase. Current savings average 30.5% compared to commercial retailers. If commissaries were operated partially funded through other than 

appropriated funds, DeCA would be compelled to institute a pricing structure similar to that of commercial grocers, with the resulting revenue used to offset the loss 

of the appropriation. Patron savings would be reduced dependent on the amount of 

cost recovery necessary. Numerous changes to legislation would be required to allow 

the commissary system to operate under a cost recovery model. 

Mr. WILSON. Has the Department of Defense re-opened discussions on consolidating exchanges? If so, what appropriated dollar savings does the Department garner from this initiative? Mr. Shull, Mr. Bianchi, and Mr. Dillon, has there been further discussion on developing hybrid stores selling merchandise and groceries, similar to Walmart and Target? Is this something that should be explored? Mr. Nixon 

and Mr. Gordy, what are your perspectives regarding an exchange consolidation or 

developing a hybrid model? 

Mr. DILLON. I defer to DOD on whether it has re-opened discussion on consolidation and on the issue of costs/savings of doing so. In regard to hybrid stores, I have 

not participated in any discussions regarding developing such stores that would sell 

merchandise and groceries. I don’t believe this is a viable option as combining systems and facilities would result in a huge upfront cost with limited opportunities 

for savings in the out years. In this already constrained fiscal environment, this action could threaten the MWR dividend significantly. 

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