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i 

74–634 2012

[H.A.S.C. No. 112–133] 

MILITARY RESALE PROGRAMS OVERVIEW 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MILITARY PERSONNEL 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD 

JUNE 7, 2012 
(II) 

SUBCOMMITTEE ON MILITARY PERSONNEL 

JOE WILSON, South Carolina, Chairman 

WALTER B. JONES, North Carolina 

MIKE COFFMAN, Colorado 

TOM ROONEY, Florida 

JOE HECK, Nevada 

ALLEN B. WEST, Florida 

AUSTIN SCOTT, Georgia 

VICKY HARTZLER, Missouri 

SUSAN A. DAVIS, California 

ROBERT A. BRADY, Pennsylvania 

MADELEINE Z. BORDALLO, Guam 

DAVE LOEBSACK, Iowa 

NIKI TSONGAS, Massachusetts 

CHELLIE PINGREE, Maine 

MICHAEL HIGGINS, Professional Staff Member 

DEBRA WADA, Professional Staff Member 

JAMES WEISS, Research Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2012 

Page 

HEARING: 

Thursday, June 7, 2012, Military Resale Programs Overview ............................ 1 

APPENDIX: 

Thursday, June 7, 2012 ........................................................................................... 21 

THURSDAY, JUNE 7, 2012 

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, RADM Robert J., USN (Ret.), Chief Executive Officer, Navy Exchange Service Command .................................................................................... 5 

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

Manpower and Reserve Affairs, U.S. Marine Corps ......................................... 7 

Gordon, Robert L., Deputy Assistant Secretary of Defense, Military Community and Family Policy, Office of Under Secretary of Defense for Personnel 

and Readiness ....................................................................................................... 3 

Gordy, Thomas T., President, Armed Forces Marketing Council ........................ 9 

Hendricks, Brig Gen Francis L., USAF, Commander, Army and Air Force 

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

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

Agency ................................................................................................................... 6 

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

APPENDIX 

PREPARED STATEMENTS: 

Bianchi, RADM Robert J. (Ret.) ...................................................................... 49 

Davis, Hon. Susan A. ....................................................................................... 26 

Dillon, William C. ............................................................................................. 75 

Gordon, Robert L. ............................................................................................. 27 

Gordy, Thomas T. ............................................................................................. 108 

Hendricks, Brig Gen Francis L. ...................................................................... 35 

Jeu, Joseph H. .................................................................................................. 62 

Nixon, Patrick B. .............................................................................................. 81 

Wilson, Hon. Joe ............................................................................................... 25 
Page

IV 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Wilson ......................................................................................................... 133 
(1) 

MILITARY RESALE PROGRAMS OVERVIEW 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, SUBCOMMITTEE ON MILITARY PERSONNEL, Washington, DC, Thursday, June 7, 2012. 

The subcommittee met, pursuant to call, at 2:37 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 gentleman, the hearing will come to 

order. 

Today, the subcommittee will examine the military resale programs within the Department of Defense [DOD], specifically the 

commissaries and exchanges operated by the Department. These 

programs are widely acknowledged as highly valuable and appreciated benefits that support Active Duty retention, the well-being 

of the military community, and the combat readiness of the force. 

These services are vital for our service members, military families, and veterans worldwide. In the current economy, commissaries 

and exchanges provide extraordinary job opportunities for military 

spouses and families. 

However, the recent pressures on the defense budget have yielded a number of initiatives to reduce funding for these programs 

and decrease their value to service members and their families. Although the threats to these programs were significant in 2011, the 

coordinated efforts of all of the members of the subcommittee, and 

in particular the ranking member, Mrs. Susan Davis, we were successful in fending off significant budget reductions. 

Unfortunately, we cannot declare a victory in this battle as the 

continuing pressure to shift budgets within the Department of Defense will energize the people who do not fully appreciate the value 

of these programs. This pressure can only be expected to increase 

in the coming months as the Congress debates the devastating reductions to defense accounts that are associated with the sequestration process scheduled to begin next year, which destroys jobs. 

Let me be clear. I remain a strong supporter of military commissaries and exchanges, and will continue to work in a bipartisan 

manner to ensure these programs endure through this era of budget challenges and remain the effective benefits that have long 

served our men and women in uniform and the Nation for so long. 

I would like to introduce our witnesses. Mr. Robert L. Gordon. 

He is the Deputy Assistant Secretary of Defense, Military Commu-
2 

nity and Family Policy, Office of the Under Secretary of Defense 

for Personnel and Readiness. Thank you for joining us again. 

Brigadier General Frances L. Hendricks, Commander of the 

Army and Air Force Exchange Service [AAFES]. 

Rear Admiral Robert J. Bianchi, Retired, Chief Executive Officer 

[CEO] of the Navy Exchange Service Command [NEXCOM]. Mr. 

Joseph Jeu, Director and Chief Executive Officer of the Defense 

Commissary Agency [DeCA]. Mr. William C. Dillon, Director, Semper—— 

Fit. Pardon me. It is Semper Fit. Okay, good. Semper Fit and Exchange Services, Manpower and Reserve Affairs Department, 

Headquarters of the U.S. Marine Corps. Mr. Patrick B. Nixon, 

President of the American Logistics Association [ALA]. And Mr. 

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

There are a number of familiar faces among the witnesses. Mr. 

Gordon, Mr. Jeu, and Admiral Bianchi, welcome back to all of you. 

Especially you, Admiral Bianchi, as you begin your new life out of 

uniform, as a civilian. 

And welcome back to our witnesses that bring us important perspective of the private sector—Pat Nixon and Tom Gordy. It is good 

to see all of you here today. 

General Hendricks, I understand you will soon be retiring from 

the Air Force after 32-years-plus of service. Please accept our gratitude for your service to our Nation and our best wishes for your 

future. 

Mr. Dillon, not wanting to leave you out, welcome for the first 

time. 

[Laughter.] 

Mr. WILSON. I would also like to make note of the retirement last 

week of Ms. Janis White, the Director, Resale Activities and Nonappropriated Fund [NAF] Policy, after 34 years of service. Janis’ 

expertise and wise counsel were highly appreciated by this subcommittee, and we wish her well in her future endeavors, which I 

understand will include considerable time on the golf course. And 

we do have one or two at Hilton Head that are available. 

[Laughter.] 

Mr. WILSON. Now I would like to recognize the ranking member, 

Mrs. Susan Davis, for her opening remarks. 

[The prepared statement of Mr. Wilson can be found in the Appendix on page 25.] 

STATEMENT OF HON. SUSAN A. DAVIS, A REPRESENTATIVE 

FROM CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON 

MILITARY PERSONNEL 

Mrs. DAVIS. Thank you. Thank you, Mr. Chairman. And I want 

to join you in welcoming all of our witnesses. And you have certainly welcomed everybody. And welcome, those of you who are 

here wearing a different hat, or no hat. 

And I also certainly want to say that for General Hendricks we 

wish you the best in your retirement, after 30 years of tremendous 

service to our country. Thank you. Thank you very much. 
3 

And, Mr. Dillon, of course welcome to the subcommittee. We are 

very happy to have you here as well. Thank you all for your service 

to our Nation and many thanks to your family as well. 

This is our annual meeting, as you know, on morale, welfare and 

recreation [MWR] programs. And we consider that these hearings 

are very important, and we know how critical the programs are to 

our families and the value that they hold for our military community. 

Over 10 years of conflict has placed a tremendous burden on 

those in uniform and also on their families, and especially on their 

children. I always want to remember the impact that our conflicts 

and the wars that we have engaged in have been on the children 

of those serving in uniform. 

It is important in today’s All-Volunteer Force that we ensure 

that the quality of life support that our families need, that they 

know where that support is, and that they know that it comes 

through many, many of these programs. 

As the budget climate begins to change, MWR programs will still 

be needed. And we are going to have to provide a wholesome quality of life for our Armed Forces personnel and their loved ones. 

These programs will need to ensure that they are spending limited resources efficiently. That is a requirement that we ask of 

them; that they are using those resources efficiently and effectively 

to ensure that both taxpayer and service member funds are being 

spent wisely. 

So during this hearing, we hope that the witnesses will share 

with us what efforts they are undertaking to ensure that these programs are effective at maximizing resources in support of military 

personnel and their families. 

I certainly look forward to that, to an open and frank discussion 

on these issues. The dedication and the commitment MWR employees have displayed to our military families under very challenging 

conditions, that we are really thankful for their contributions. You 

play a very important role in doing that. 

Thank you, Mr. Chairman. I look forward to hearing from witnesses. 

[The prepared statement of Mrs. Davis can be found in the Appendix on page 26.] 

Mr. WILSON. Thank you very much, Mrs. Davis. 

And we will now proceed to the witnesses in the order as I indicated. Mr. Robert L. Gordon. 

STATEMENT OF ROBERT L. GORDON, DEPUTY ASSISTANT SECRETARY OF DEFENSE, MILITARY COMMUNITY AND FAMILY 

POLICY, OFFICE OF UNDER SECRETARY OF DEFENSE FOR 

PERSONNEL AND READINESS 

Mr. GORDON. Thank you, Mr. Chairman and members of the subcommittee. I am delighted to appear before you today, and I appreciate this subcommittee’s tradition of strong support for important 

benefits derived from our resale programs. 

Commissaries and exchanges are a highly valued, non-pay compensation benefit for our service members and their families, and 

we appreciate that you also recognize their value. The Department’s leadership remains committed to these important programs. 
4 

Secretary Panetta has been clear that we want to maintain the 

quality of benefits that flow to our troops and their families. 

Also, our industry partners here today share our keen interest in 

preserving the valuable commissary and exchange benefit. Everywhere I go on my visits to military communities I hear of the tremendous appreciation for, and in some cases the need for, commissaries and exchanges. 

Often they are only the source of high-quality American-made 

products. But equally important, they are the lifeblood to many of 

our installation support programs. 

I also see how important it is to have these programs that are 

the number one employer of our military family members. In fact, 

DeCA and the military exchanges are partners in the Military 

Spouse Employment Partnership, and each has committed to recruiting, hiring, and retaining military spouses as employees. 

Their jobs are listed on our newly redesigned Web portal, where 

military spouses can easily apply for positions around the world as 

a relocating military spouse. 

My written testimony outlines our ongoing work in greater detail. Please be assured that as we continue to institute necessary 

changes we will always consider these services as one of the most 

valuable non-pay benefits. We will do our very best to take care of 

our most valuable assets—our service members and their families. 

Thank you again for your support. 

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

Mr. WILSON. Thank you very much. 

And we now proceed to Brigadier General Francis L. Hendricks. 

STATEMENT OF BRIG GEN FRANCIS L. HENDRICKS, USAF, 

COMMANDER, ARMY AND AIR FORCE EXCHANGE SERVICE 

General HENDRICKS. Mr. Chairman and members of the subcommittee, thank you for the opportunity to address you today. 

AAFES has proudly served America’s Armed Forces for 117 years 

and remains focused on our longstanding mission, to make the 

lives of soldiers and airmen better. 

Strong exchange benefit is one of the cornerstones of the military 

way of life. It enhances recruitment and retention, thereby aiding 

in the readiness of the Armed Forces. 

I want to thank the committee, and specifically Congressman 

Jones, for the language you included in last year’s National Defense Authorization Act [NDAA] that authorized the exchanges to 

use the Federal Finance Bank. Your effort will result in an annual 

savings of $25 million. 

AAFES is a committed partner and teammate of the military resale community. Together with our sister exchanges and DeCA, we 

are fully engaged in pursuing new opportunities for collaboration 

and efficiency for 2012 and beyond. 

Of course, we don’t do this mission alone. I want to thank our 

vendor partners and military support organizations, especially the 

American Logistics Association and the Armed Forces Marketing 

Council. 
5 

Our commitment to the military community extends beyond just 

the goods and services we provide. We have made a significant 

commitment to hiring members of the military community. 

Thirty-one percent of our 43,000 associates are military spouses 

and family members. Veterans make up 13 percent of our workforce. We have partnered with the Wounded Warrior Project to recruit and train valuable associates. 

Finally, with the recent end of U.S. military operations in Iraq, 

it is worthwhile to reflect upon our efforts to serve those serving 

there. In the early spring of 2003, as U.S. ground forces fought 

their way up the Euphrates and Tigris Rivers, AAFES was with 

them. Our first store in Iraq operated out of the back of a Toyota 

Land Cruiser. As troops advanced northward, so did our store. 

From those humble beginnings, AAFES support continued to 

grow. And at the height of the efforts in Southwest Asia we operated 95 sites throughout the theater. During the next 8 years more 

than 4,000 AAFES associates volunteered and deployed to operate 

retail stores and food activities in support of the troops. We 

brought them familiar products and services, and the food they 

craved. 

In that moment, at that place, we brought a little piece of home 

to them. We did that mission for 8 years in Iraq, and we continue 

to do it in Afghanistan today. 

Mr. Chairman and members of the subcommittee, thank you 

again for your support. We are here to serve [H2S]. I look forward 

to your questions. 

[The prepared statement of General Hendricks can be found in 

the Appendix on page 35.] 

Mr. WILSON. Thank you very much. And I saw firsthand your 

service overseas and in-theater, and I know how much the troops 

truly appreciated this service. 

Rear Admiral Robert J. Bianchi. 

STATEMENT OF RADM ROBERT J. BIANCHI, USN (RET.), CHIEF 

EXECUTIVE OFFICER, NAVY EXCHANGE SERVICE COMMAND 

Admiral BIANCHI. Chairman Wilson, Ranking Member Davis, 

and distinguished members of the subcommittee, I am pleased to 

appear before you today, and privileged to be back at NEXCOM as 

the first civilian CEO; proud to once again lead this tremendous 

group of 14,000 dedicated professionals around the globe. 

Today, much is asked of our men and women in uniform. And in 

an environment of smaller budgets and fewer forces, more will be 

asked of them. Nonappropriated fund programs are an important 

factor in increasing retention, improving readiness, and sustaining 

the quality of life of our Active Duty military, Reservists, Guard, 

retirees and their families. 

Navy exchanges, through savings at the cash register and funding for MWR programs, deliver more than a six-to-one payback of 

appropriated fund support, providing an effective and efficient 

mechanism to deliver the benefit our military families want and 

value. 

Support to our military families is vital, and in these tough economic times they expect more and rely on us more. Our 2011 annual market basket survey results show that customers save an av-
6 

erage of 23 percent below commercial retail prices, not including 

sales tax, generating over $500 million in non-pay compensation. 

And for the second year in a row, our annual customer satisfaction index survey remained at an all-time high of 83, placing us in 

the top tier of industry retailers. 

New to the survey this year were questions to help us better understand how we connect with our military families. Customers responded very favorably that Navy exchanges make them feel connected to the Navy and demonstrate the Navy’s commitment to 

their family needs. 

But NEXCOM delivers much more than savings. No commercial 

retailers have the depth and breadth of services that NEXCOM 

provides, nor do they go where we go; places like Djibouti, Africa, 

and Diego Garcia. We provide career opportunities for our military 

families and veterans. In fact, over 26 percent of our workforce are 

military family members. 

We bring a touch of America to sailors and their families around 

the world. With the support of our industry partners, we offer programs focused on military families, including customer appreciation events and joint events with the commissary and MWR. As a 

department of our base commands, we are also there during crises, 

as evidenced by our support to families during the earthquake and 

tsunami in Japan last year. 

We are focused on supporting the Secretary of the Navy’s 21st 

Century Sailor and Marine initiative. Together with the other 

Navy departments, we will help sailors make good choices. We are, 

and always will be, a military organization that contributes to personal and family readiness. 

Because our sailors depend on us, we are working to deliver the 

benefits in the most efficient manner, while remaining relevant for 

the future. Aligned with our industry partners and our sister resale 

agencies, we continue to work on taking costs out of the system, 

ensuring these valued non-pay benefits remain viable and strong 

for generations to come. 

What we accomplish cannot be done without the strong and unwavering support of this subcommittee. You have sent a clear message that these programs which support military families are critically important. We thank you, and are grateful for your support. 

I look forward to your questions. 

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

Appendix on page 49.] 

Mr. WILSON. Thank you very much. And it is particularly important you indicated that 26 percent of your personnel are persons 

of military families. Thank you for bringing that point up. 

Admiral BIANCHI. Sure. 

Mr. WILSON. And we proceed now to Mr. Joseph Jeu. 

STATEMENT OF JOSEPH H. JEU, DIRECTOR AND CHIEF 

EXECUTIVE OFFICER, DEFENSE COMMISSARY AGENCY 

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

subcommittee, it is my pleasure to provide the annual report on the 

state of the commissary benefit. As I visited many commissaries 

and conversed with our customers, I can assure you the commissary continues to be one of their most valued non-pay com-
7 

pensation benefits, at the same time providing taxpayers an excellent return on investment. 

Few, if any other, benefit systems can boast a two-for-one investment return. Last fiscal year, the commissary provided direct savings to commissary customers of $2.8 billion, for a taxpayer cost of 

$1.34 billion. The indirect support benefit, as outlined in my statement for the record, adds hundreds of millions of dollars more. 

Yet, some question whether today’s commissary is antiquated. With 260,000 patrons visiting a commissary every day, buying $16 

million in goods, there is no doubt the commissary remains relevant and an invaluable element of the non-pay compensation 

package. We have much to be proud of this year. 

In particular, they include achieving an unqualified audit opinion 

of our financial statement for the 10th consecutive year; being recognized with the Secretary of Defense’s best mid-size component 

award for employing individuals with targeted disabilities; and the 

Paralyzed Veterans of America employable award for expanding 

employment opportunities for veterans; and supporting socioeconomic programs including $571 million in contracts with small 

and disadvantaged businesses, and contracting for another $133 

million going to AbilityOne program. 

In closing, I would like to thank the members of this subcommittee for their continued support of the commissary benefit, 

and I look forward to your questions. 

Thank you. 

[The prepared statement of Mr. Jeu can be found in the Appendix on page 62.] 

Mr. WILSON. Thank you, Mr. Jeu. 

And we now proceed to Mr. William Dillon. 

STATEMENT OF WILLIAM C. DILLON, DIRECTOR, SEMPER FIT 

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

Mr. DILLON. Thank you. 

Chairman Wilson, Ranking Member Davis, distinguished members of the subcommittee, thank you for inviting me here today to 

discuss our Marine Corps exchange and retail programs. The Marine Corps Exchange is directly linked to our mission of taking care 

of our marines, sailors, and their families, and it is an important 

part of the overall non-pay compensation package. 

Our operational success is measured on our ability to provide unparalleled customer service, premier facilities, and valued goods 

and services at a savings. We believe that keeping faith means ensuring that the exchange benefit on which families depend remains 

high in quality, relevant, and accessible. 

We are executing branding strategies, and our aggressive reinvestment into main stores has been greatly appreciated by our patrons. Over the past 8 months, I have attended grand openings at 

Twenty-Nine Palms, Henderson Hall, Camp Lejeune, and Camp 

Pendleton. The new and refurbished main exchanges look great 

and offer a wide selection of right-priced, relevant merchandise in 

a shopper-friendly atmosphere. 

Our marines’ gratitude for being provided these premier facilities 

is evidenced by their positive comments and by the strong sales re-
8 

sults since opening. I would also like to point out, in support of hiring vets, spouses, and family members, that about 29 percent of 

our retail employees are family members. And many others are veterans. 

With our Marine Corps Exchange, marines, sailors, and families 

can rely upon a high-quality product at a fair, competitive price 

and know that the proceeds are reinvested in their community, 

their exchange, and their MWR programs, creating a stronger Marine Corps. 

On behalf of marines, sailors, families, and Marine Corps Exchange employees, I would like to thank you for your recent letter 

commemorating the Marine Corps Exchange’s 115th anniversary, 

coming up on September 17th of this year. 

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 75.] 

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

And we now proceed to Mr. Patrick Nixon. 

STATEMENT OF PATRICK B. NIXON, PRESIDENT, AMERICAN 

LOGISTICS ASSOCIATION 

Mr. NIXON. Thank you, Mr. Chairman. It is once again an honor 

to appear before this subcommittee representing the membership 

and board of directors of the American Logistics Association. 

The ALA is over 90 years old, and its members consist of some 

of the largest consumer packaged goods companies, service providers, retail brokers, and distributors in the world. 

In addition, this year I am honored to represent the members 

and valued associates of the Coalition to Save Our Military Shopping Benefits. The members of the coalition consist of many military patrons, resale employees, and thousands of Americans that 

care about how we take care of our military families. 

The valued associates of the coalition include the National Military Family Association, the Fleet Reserve Association, the National Industries for the Blind, and our colleagues here today, the 

Armed Forces Marketing Council. They understand the importance 

of these benefits to the military, and have stepped forward to add 

their voice to the discussion. 

I also want to take this opportunity to recognize the leadership 

of the chairman and the distinguished ranking member over the 

course of the last several years, in particular your support of these 

vital benefits we will discuss today. 

I want to specifically recognize the subcommittee for the construct and conduct of these hearings over the last several years. 

The transparency of strategy, discussions, and collaboration are a 

clear testament to the value of this unique public-private partnership that supports and delivers these key benefits for our military 

and their families. 

The ALA has undertaken an additional initiative this year by 

working with Secretary Gordon and the White House to harness 

the employment engine of the ALA member companies to support 

the initiative of hiring veterans and military family members out-
9 

lined by the Joining Forces initiative, under the leadership of the 

first lady. 

The ALA member companies committed to hiring of 25,000 veterans and military family members, which is 25 percent of the program goals. A point that also deserves recognition is the fact that 

the military resale system is the largest employer of military family members and veterans in America. 

Mr. Chairman, we have provided, in our testimony for the record, 

an outline of thoughts, concerns, and recommendations. During the 

past year, the Congressional Budget Office [CBO] deficit reduction 

recommendation has served as the basis for several attacks on the 

resale system. We take great exception to their assumptions and 

findings, and have included specific concerns about the CBO report 

in our prepared remarks. 

We are clearly approaching the perfect storm of budget impacts, 

with extreme implications for every American. In any meaningful 

evaluation of the way ahead, there needs to be a review of all programs. But that review must take into account those programs that 

can serve as a benchmark for efficiency, effectiveness, and return 

on investment to the American taxpayer. The military resale system is just such a program. 

The savings delivered by the systems provide a two-to-one return 

to the taxpayer, and the benefits continually rank near the top of 

the valued benefits to the military. When you take into account the 

equity derived from the patrons’ investment in infrastructure, the 

offsets to cost-of-living adjustments [COLAs], the offsets to military 

transportation costs, the employment opportunities provided military family members, and the support provided to morale, welfare 

and recreation programs, the economics are clear. These elements 

are captured in our formal testimony and I am sure will surface 

in our discussions today. 

Thank you, and I am prepared to answer your questions as we 

proceed. 

[The prepared statement of Mr. Nixon can be found in the Appendix on page 81.] 

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

And we now proceed to Mr. Thomas Gordy. 

STATEMENT OF THOMAS T. GORDY, PRESIDENT, ARMED 

FORCES MARKETING COUNCIL 

Mr. GORDY. Chairman Wilson, Ranking Member Davis, and 

members of the Personnel Subcommittee, thank you so much for allowing the Armed Forces Marketing Council to participate in today’s hearing. 

I wanted to begin first by offering our most sincere appreciation 

to you, Mr. Chairman and Mrs. Davis, for your leadership last year 

in getting 67 other Members of Congress as well as most of the 

members of this subcommittee to sign the letter to the Secretary 

of Defense sharing this Congress’ support for this very valuable 

benefit. 

We also were very grateful to Congress for passing the repeal of 

the 3 percent withholding requirement on government contracts 

last year. This subcommittee was instrumental in highlighting the 
10 

adverse impact that the impending enactment of the withholding 

requirement would have on the commissaries in the exchanges. 

Passage of the repeal has saved hundreds of thousands to millions of dollars from being unnecessarily spent by the resale systems, protected MWR dividends, and insured the prices at the shelf 

remain low for the patron. 

The council would also like to go on record and thank the member associations of The Military Coalition and the National Military 

and Veterans Alliance for their efforts last year in opposing S. 277 

and the Coburn amendment to the 2012 National Defense Authorization Act, both of which called for consolidation of military resale 

as promoted and proposed by the Congressional Budget Office that 

Mr. Nixon spoke of earlier. 

Because of the combined efforts of so many individuals and organizations, we are happy to state that both pieces of legislation were 

not passed by the Senate. We also want to recognize the success 

of the Department of Defense and the military resale systems to 

continue to deliver a world-class benefit for military families. 

In my mind, one event occurred last year that completely demonstrates the importance of the benefit and the valuable partnership that makes it all work. When the earthquake and tsunami 

struck Japan in April of last year, military resale systems, working 

with industry partners and the services, ramped up efforts to ensure that military families stationed in Japan had access to food, 

water, milk, and other essential items like diapers and baby formula. And as the father of a 16-month-old, I couldn’t imagine life 

without diapers, let me tell you. 

[Laughter.] 

Mr. GORDY. The resale stores in Japan remained stocked, while 

the stores outside the gate were empty. Not only did the system 

support our military families, but also was able to support the recovery effort with essential supplies, providing the United States 

with another element of humanitarian support to our friends in 

Japan. And it should also be noted there were no price increases 

on the products at the shelf. 

There is a strong partnership between the Congress, the Department of Defense, and the services and the resale industry to insure 

the effective, efficient, and continuous delivery of this very important quality of life benefit for our military families. 

There are, however, issues of concern to the council that we have 

highlighted in our written testimony, and look forward to addressing those and other concerns in today’s hearing. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Gordy can be found in the Appendix on page 108.] 

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

We will now proceed into a round of members of the subcommittee asking questions. We are under a strict 5-minute guideline, and we have a person above reproach who will be maintaining 

that time. Of course that is Mike Higgins. 

And so as you see him grimace, that means the 5 minutes is up. 

But we will begin with myself. And then we will proceed with our 

other subcommittee members. 
11 

As I indicated in my opening statement, I am very, very concerned about the effect of sequestration, the defense cuts, as to the 

impact on our service members, military families, veterans. The defense budget has been cut $100 billion. It has been cut further by 

$487 billion. And now we are facing, January 1, an across-theboard cut of nearly $600 billion. It has been interpreted it could be 

between 8 percent to 12 percent of the defense spending. 

And, Mr. Jeu, what would be the affect of such a cut on the defense commissary agency of sequestration? 

Mr. JEU. Sir, first let me talk a little bit about the—I think 

DeCA has been a model agency for efficiency. Since DeCA was created in 1991, we have achieved over $900 million in savings, and 

reduced our full-time [FT] employees by 6,600 people. 

And so, consequently, there is not very much left in terms of significant savings. So should there be any cuts with the sequestration or in other means, it would have direct impact on our service 

and benefit to our customers. 

Mr. WILSON. And I appreciate you raising this for the American 

people to know. And I am just so hopeful that there can be bipartisan addressing of this issue. 

General Hendricks, Admiral Bianchi, and Mr. Dillon, another 

issue would be appropriated funding. If that were eliminated, what 

would be the impact on your ability to provide services? 

General HENDRICKS. Sir, the limit of appropriated funding would 

hinder some of the ability of us to do that. Our main concern right 

now would be overseas utilities, which are now paid for through 

appropriated funding. 

We would either have to account for those on the business line, 

or they would come out of the MWR piece. Either way, it is going 

to end up hurting the family members and the soldier, airman, 

sailor, and marine. So it would have a direct impact. 

Admiral BIANCHI. Sir, I would offer that, from the appropriated 

funds [APF] side, one of the primary activities that are funded is 

second-destination transportation. So if there were any reductions 

there, those funds are certainly critical to us providing quality 

goods and services to our forward-deployed service members to 

make sure they have access to comparable levels of service as their 

counterparts here in the U.S. 

So if there were any reduction, that would potentially limit our 

ability to provide those services. And I guess I am mostly concerned about places where there are limited options outside the 

gate, like Gitmo or in Djibouti. So, you know, there are certain locations in particular where no one has an opportunity for an alternative source of supply. 

So yes, sir, there could clearly be an impact there. 

Mr. DILLON. Chairman Wilson, I would echo what the Admiral 

had to say in terms of the concern that I would have with seconddestination transportation not being supported. 

In addition to that, as you probably know our facilities, our exchange facilities are supported. The maintenance on those facilities 

is covered by appropriated funds today on our installations. If those 

funds were to be depleted in any way, then over time our facilities 

would begin to deteriorate. We may not be able to maintain them 

for future marines coming through the gate. 
12 

Mr. WILSON. And thank you each, because you have really 

brought a real-world circumstance of utilities, of transportation, of 

maintenance. And again, thank you. 

Mr. Nixon and Mr. Gordy, what would you believe is the private 

sector reaction to the sequestration cuts? 

Mr. NIXON. Mr. Chairman, the impacts would be devastating, 

clearly. We know that. And I commend your leadership recently in 

bringing the issue of sequestration to the forefront. It is an item 

we must discuss, we can no longer avoid. Because action soon 

needs to be taken to address what is going to happen. 

The principal use of appropriated funds for the Defense Commissary Agency is employees, around 70 percent. The impact on 

the exchanges for the elimination of appropriations would just devastate their ability to provide any support for MWR. 

From our Save Our Benefit Web site, I have a quote. We ask for 

testimonials. And here is a quote I want to read; Kathleen in Ohio. 

‘‘Our family is a proud military unit. We didn’t enlist our family 

in the military to get rich. However, at times it seems to be a bit 

of a struggle to make ends meet. If Congress decides to eliminate 

our commissaries and exchange benefit, it will make it impossible 

to raise a healthy family, much less survive. Please do not end 

these benefits. We are a strong military family. But if faced with 

this, re-enlistment is no longer an option.’’ 

That is the impact on the military. 

Mr. WILSON. That is gruesome. 

And Mr. Gordy, very briefly. 

Mr. GORDY. Well, just to echo what has already been said, you 

know, the impact would be devastating. At the end of the day what 

it means is that military families would not only have to earn this 

benefit, but then they would also have to pay for it. 

So therefore, there is no longer any benefit, and it would be hard 

to call it that going forward. As Mr. Jeu pointed out, you know, 

there is not a lot of fat to cut in their budget. And so the only way, 

if it comes down to a salami-slicing of 8 to 12 percent, it is the military family who is going to end up feeling the pain once again. 

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

And we now proceed to Mrs. Susan Davis. 

Mrs. DAVIS. Thank you, Mr. Chairman. 

And I think you have all really made the economic argument, 

and certainly the support for our troops and for our families. I wonder, though. And I can assure you that we support you in that and 

certainly advocate in that way. 

Having said that, though, you have dealt with consolidation before, particularly General Hendricks and Mr. Bianchi, Mr. Dillon in 

the exchange systems. And I am wondering what kinds of preparation you have been under. You know, option 6 I think you looked 

at, and 11. 

What is it that you are doing to sort of help, I guess, to outline 

that preparation? And part of that, I think, is some of the advocacy 

that we can use to really paint a very clear picture for people of 

what this means. 

You have already stated that. I don’t want to ask you to have to 

do that again. But can you let us in on some of the specific plans 
13 

† Subsequent to the hearing, the witness informed the committee that he intended to use the 

terms ‘‘cooperation’’ and ‘‘cooperate’’ rather than ‘‘consolidation’’ and ‘‘consolidate’’ in the three 

instances indicated. 

that really help to address some of these issues if, in fact, some of 

the concerns around consolidation were to move forward? 

Mr. GORDON. Well, let me start off very quickly. But the Department has no plans at this point to examine exchange consolidation. 

In the past, there have been seven studies. Those studies have basically shown that consolidation of our exchanges actually can do 

more harm than good in terms of cost savings and innovation. 

And I am happy to say, and I will let the commanders speak for 

themselves, that through partnership and through cooperative efforts—and we have many examples of those—that our three exchange systems are robust and vital as they currently stand. 

Admiral BIANCHI. I guess I would just offer a couple of specific 

examples where the exchange commanders are working together as 

was kind of the outcome of the last study which was the Unified 

Exchange Task Force [UETF]. That consolidation † really is the 

more efficient and effective means. 

At NEXCOM, we share facilities with AAFES for van stuffing to 

send products to Japan and Guam. The Marine Corps Exchange 

uses our distribution center. We support 120 Marine Corps locations through our distribution center. 

We just negotiated a contract for motor fuel in Hawaii between 

the exchange and NEX and AAFES. We are saving $3.7 million. 

We share a contract for inventory-taking equipment that saved 

over $200,000. 

So there are opportunities out there. We have a very strong cooperative efforts board [CEB]. We formally added Joe Jeu of DeCA 

to the organization this year. We also added the Coast Guard Exchange as an ad hoc member. We meet on a regular basis. And we 

have subgroups that are constantly looking for ways to save, to 

consolidate † and become more efficient. 

And those are just a few. I mean, we publish a report every year, 

submit it to the Department, of our efforts. And I think we have 

demonstrated over the years that we turn every rock over and look 

for opportunities to consolidate † and save. 

Mrs. DAVIS. Are there any areas that you have followed in the 

past that for whatever reason have just been very difficult to do? 

I mean, what are the obstacles as you try and look at some of those 

areas where you can be more effective? 

And obviously you have been successful in doing that. I am wondering, are there some areas, though, that are just really difficult? 

And is there any way in which we could be helpful in that way? 

Mr. DILLON. I would like to address that to some extent, Congresswoman Davis. The services have cooperated on a number of 

areas. One of them that has been very successful in certain ways 

has been in private label sourcing of merchandise. 

The exchange select program in consumables has been extremely 

helpful for all of the exchanges; a wonderful product, as good as 

you can find. I know we have a Proctor & Gamble representative 

here but, hey, our stuff is really good. 

[Laughter.] 
14 

Mr. DILLON. But there are probably other areas, I think, that we 

could explore in this, in private label, that would generate some 

savings to a great extent that we need to pursue as an organization 

with the cooperative efforts board that we probably haven’t gone 

after as much as we should have. 

Mrs. DAVIS. Thank you. 

Did you want to—— 

General HENDRICKS. Yes, ma’am. I was just going to say that, 

you know, since that last study we have really, really embraced collaborative efforts in regards to communicating better with one another. 

Just the other day I did an announcement that goes into all the 

commissaries and the exchanges over our radio system on the upcoming Army’s birthday. I called my good friend Joe Jeu and said, 

‘‘Hey, here is what I just said. You just take my name out, put 

yours in, because our radio plays in the commissary and our 

stores.’’ We are going to record him tomorrow, too. 

It is very important that the military community hears all of us 

and sees us all working together. So I am very excited about where 

we are headed in our efforts, the new CEB, adding Joe and the others to the team this year. Communication is key as we move forward with the deficit reductions that are coming that we are looking every way we can to assist the community. 

Mrs. DAVIS. Thank you. 

Thank you, Mr. Chairman. 

Mr. WILSON. Thank you, Mrs. Davis. 

We now proceed to Congressman Alan West of Florida. 

Mr. WEST. Thank you, Mr. Chairman and ranking member. And 

thanks for the panel for being here and, sir, ‘‘Rangers lead the 

way.’’ 

As we just finished voting on the fiscal year 2013 military construction [MILCON] appropriations last week, my first question is, 

are we meeting your requirements, or what percentage are we 

meeting the requirements, of the services you provide as far as 

military construction? I know we just talked about a new facility 

there, but are we keeping up with the demands that you all are 

placing? 

Admiral BIANCHI. Sir, I would say we have a very robust recapitalization plan. The Navy’s formula is 70–30, so all the profits that 

I make, 70 percent go to MWR, 30 percent are retained for recapitalization. And our recapitalization budget averages between $30 

million to $50 million each year. In fact, we are just getting ready 

to cut the ribbon in the fall in Bethesda at the new 150,000-squarefoot store. 

So we all realize, I think, that if we don’t have fresh facilities, 

modern facilities, our patrons will vote with their feet. They deserve a recapitalized infrastructure and we are committed to doing 

that. 

And with the Navy, at least, we have a strong board oversight, 

an MWR exchange board run by three-stars across the Department. And part of their job is to ensure that this recapitalization 

plan continues. 

So I believe we are meeting that need. And we do not have a 

backlog. We have a very structured approach to that, sir. 
15 

Mr. DILLON. I would also like to add to what the admiral had to 

say. Our program, too, is very structured. We are doing very well. 

I addressed some of the most recent main exchanges that we have 

opened. We have a number of Marine Marts that we will be touching over the next few years. 

But I think to get to your point, sir, in terms of where MILCON 

can help out, with most of these exchange programs that we have 

and construction programs there is a companion MILCON project. 

And it is very important that that military construction funding be 

available. 

So when we start to talk about reductions in appropriated funds 

on the MILCON side, it can hurt our recapitalization of our NAF 

facilities if those companion projects that are required—putting in 

roads, putting in utilities, those kind of things—if the funding for 

those are not available. 

So in terms of being able to help us out, making sure that funding for MILCON is there, we can get those companion projects finished and be sure that we can complete our NAF, our nonappropriated fund projects, on time. 

Mr. WEST. Okay. General. 

General HENDRICKS. I echo those comments exactly, as Mr. Dillon said. That is going to be the short pole in the tent coming forward. Over the last 5 years in AAFES, we have done $1.5 billion 

in MILCON for the places we serve and whatnot. 

I would like to thank the committee for the assistance on lifestyle centers. Fort Bliss is just a win-win-win; win for the soldiers 

and their families, win for the city of El Paso, the jobs. We collect 

appropriate taxes there from the concessionaires, and it is a win 

for the third-party tenants. Many are leading their particular industries locally, regionally, or nationally. 

Now, we have two more pilots coming up, one at Lewis-McChord, 

which is presently 95 percent designed. We look for a fall-winter 

beginning construction there of 2012, completed in the fall-winter 

timeframe of 2014. Very key for that big community up there. 

And the third pilot we have is the Joint Base San Antonio, which 

is presently 65 percent in design, with a planned opening date of 

2016. We appreciate again the committee’s support there as we 

look at these types of things. 

And from those pilots we will take things from there and spread 

them across the other installations. But this has been a great program in partnership with the public and the private venture. 

Mr. WEST. Thank you. 

As we move, I want to talk about operations in combat theaters. 

And I will tell you that there was no greater day than when that 

first 5-ton truck rolled into Taji Air Base and it had Pringles potato 

chips and cookies on it. 

[Laughter.] 

Mr. WEST. And the battalion commander was the first one to get 

onto that truck. 

[Laughter.] 

Mr. WEST. But the thing that I want to ask you is, now that we 

have ended those combat operations in Iraq, did we go back and 

do an after-action review to look at the things that we learned as 

far as, you know, that type of support of exchange and services? 
16 

And what type of constraints did you see overall for your system 

operating in two combat theaters of operation in Iraq and Afghanistan? Any points on that? 

General HENDRICKS. Sir, yes, sir. We have done an extensive hot 

wash coming out of Iraq as we have swung from there into Afghanistan. A lot of lessons learned that we have taken back and we will 

formalize for when we go forward. The biggest concern is, when we 

started down this thing folks in the building were looking around 

at each other. It has been a while since we had done one of these, 

and so we had to learn on the fly. 

So we are capturing all those. We are using the lessons learned 

there. And again, we are already starting. As we look at Afghanistan, our exit strategies, we have learned how to get things in 

there where they need to be there very quickly; various routes of 

entry through the logistics operations centers [LOCs], depending on 

what is available and what is not. And how do we take care of our 

soldiers there. 

We had a site last week that had a direct hit. We were able to 

get a TFE back in site, a tactical field exchange, within a day. It 

is very important to us and those soldiers that they know that 

what they need we can get there in short order. 

And so yes, sir, to answer your question, we have learned a lot. 

We are capturing that so that someday in the future when we need 

that again we will be able to pull it off the shelf and be able to 

review it. 

Mr. WEST. Thank you, Mr. Chairman. I yield back. 

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

We now proceed to Congresswoman Madeleine Bordallo of Guam. 

Ms. BORDALLO. Thank you, Mr. Chairman. And to all our witnesses, thank you for your testimonies this afternoon. 

My first question is for Mr. Gordon. As you are aware, I sponsored section 644 of the House-passed fiscal year 2013 NDAA. It 

requires the commissary and exchange oversight boards to establish guidelines for identifying certain sustainable products. It also 

requires the Department to develop a plan on how it would implement greater procurement of sustainable products. 

I am very adamant that we can do much more to make the commissary and exchange system more sustainable. Private industries 

have taken the lead on these initiatives, but I fear the exchange 

and the commissary system is falling behind. 

So I would like to understand the Department’s position on this 

provision. What efforts, if any, are ongoing to procure these products? 

Mr. Nixon and also Mr. Gordy, I am also interested in learning 

how the private sector can help to achieve whatever goals DOD 

may set if my provision is included in the final bill. 

Mr. GORDON. Thanks very much for that, Congresswoman. Sustainability is very important. I will let some of the exchanges speak 

for themselves in terms of what they are doing. But the Defense 

Department strives to be a very good steward of our environment, 

first of all. 

And in terms of the products that we sell and the goods and services that we provide our military community members, we believe 

that we were very thoughtful, first of all, in considering the sus-
17 

tainability efforts, from the construction of our plant and equipment to our operations and maintenance, to the types of foodstuffs 

and services that we provide in our commissaries and exchanges. 

And I would like to defer to our commanders to talk about some 

of that sustainability. 

Mr. Jeu. 

Mr. JEU. Obviously, we support sustainability. I am going to 

focus a little bit on some of the sustainability that is going on within the commissary system because we are the heavy user of energy. 

And, in fact, our refrigeration system consumes so much energy it 

is quite important for us to be energy efficient. 

And so over the last 10 years, 20 years, we have made concerted 

effort to reduce our energy consumption. In fact, results show that 

our energy consumption is about 30 percent less than commercial 

private sector. 

So we are very proud of the achievement we have made. We have 

a great recycling program within our commissaries. We recycle over 

53,000 tons of cardboard boxes. So those are some of the things we 

do. 

And as far as product that we sell, there is no industry standard 

yet because in the grocery industry that is still in development. But 

as soon as we have a more formed plan then, obviously, we will add 

more and more sustainable environment and friendly type of products. 

Ms. BORDALLO. Thank you. 

Anybody else want to comment? 

Mr. NIXON. Yes, ma’am. In reviewing the proposal that you have 

submitted, one of the things we did was reach out to our member 

companies. As a trade association, we have a lot of member companies that have some really leading-edge technology in this area. 

And one of the things we thought is to put together an industry 

forum that focused specifically on this issue. Some of our member 

companies, like WESCO, deal in the construction and supply industry. The other consumer packaged goods companies have leadingedge technologies on what is the art of the possible in sustainability and developing sustainable products. 

So industry can play a very important role in working in the 

partnership with the resale commands to put together a solid program, ma’am. 

Ms. BORDALLO. Good. Thank you very much. I have a final question here for Mr. Gordon regarding container deposit programs. 

I want to understand how the exchanges and the commissaries 

in states or localities that have container deposit programs comply 

with these laws, or those laws. Or if they don’t comply, what is the 

issue that hinders compliance? 

For example, I believe that military installations in the State of 

California and the State of Hawaii comply with the container deposit programs. So how is this achieved, and how can we ensure 

that we get compliance on Guam as well? 

Mr. GORDON. Well, we can. We have to understand, especially in 

places like Guam, what some of the issues are with respect to container deposit programs. I will tell you that we are working hard. 
18 

I know that you want us to submit a report on that. We look forward to submitting that report. But I just want to let you know 

that the Department is committed. 

Ms. BORDALLO. Very good. 

And I yield back, Mr. Chairman. 

Mr. WILSON. Thank you, Ms. Bordallo. 

And we now will proceed to Congressman Austin Scott of Georgia. 

Mr. SCOTT. Thank you, Mr. Chairman. I will try to be brief. 

But, Mr. Gordon, are you operating under the assumption that 

sequestration happens? 

Mr. GORDON. We are not. We are not planning for sequestration 

at this time, Congressman. 

Mr. SCOTT. With all due respect, and I didn’t vote for it, but if 

you are not planning for it at this time and the President hasn’t 

said he is not going to undo it, when do you intend to start planning for it? 

Mr. GORDON. Well, at this point in time, as Chairman Wilson said, this Department is looking at a $487 billion cut over the next 

10 years. And with sequestration, with an additional $500 billion, 

that would be nearly $1 trillion and would be devastating for the 

Department. 

We are moving forward with our current plans in terms of that $487 billion over 10 years. 

Mr. SCOTT. Mr. Gordon, I agree with you on the devastating cuts. 

But the fact of the matter is, sequestration is the law of the land. 

And it concerns me when members of the Department in leadership 

positions come before us and say that they are operating under the 

assumption that it is not going to happen. 

And I would just tell you that I think, with due respect, that as 

long as it is the law of the land—and as long as there are no plans 

from the executive branch, the President and, it seems, from Secretary Panetta that he expects sequestration, or certainly some 

form of it, to happen—how could the Department possibly carry out 

sequestration without having a devastating impact—especially to 

those men and women who are in the war zones—if, here in midJune, you are not even—and I am not talking about you in particular, but the leadership of the Department—is not even making 

plans to deal with what the current law of the country is? 

And I think the impact on our soldiers from not having a plan 

is going to be devastating. And I think if you had a plan, and 

showed America the end result of the plan, then we, those of us 

who want to undo it, would get a lot further with getting it undone. 

And so I would just encourage you to put together the plan, all of 

you. 

I mean, General, you didn’t get to be a general without following 

a plan. And I mean that very respectfully. You can’t, we can’t, assume that this is not going to happen. We cannot make the assumption that sequestration is not going to happen. 

And I encourage you to put together a plan so that the American 

public can see what the impact to its soldiers will be. And then I 

think that we will have the help we need, those of us who want 

to undo sequestration. 

Thank you, and I yield the remainder of my time. 
19 

Mr. WILSON. Thank you very much, Mr. Scott. And I appreciate 

in particular Congressman Scott being here. He is undergoing a 

high element of flu, but that doesn’t stop him from getting around. 

[Laughter.] 

Mr. WILSON. And he has assured me that it is not contagious to 

Congressman West, okay? 

[Laughter.] 

Mr. WILSON. And but, hey, he is immune. But we just appreciate 

your dedication. 

And I, on behalf of the subcommittee, would like to thank all of 

you for being here today. Your commitment to our service members—and it is so exciting for me to hear what Pat mentioned 

about military families and employment opportunities—this is just 

extraordinary. And for our veterans, too. 

And so if there is no further business, we shall be adjourned. 

[Whereupon, at 3:31 p.m., the subcommittee was adjourned.] 

A P P E N D I X 

JUNE 7, 2012 

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JUNE 7, 2012 

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QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

JUNE 7, 2012 

(133) 

QUESTIONS SUBMITTED BY MR. WILSON 

Mr. WILSON. Are there legislative or policy barriers that prevent the military resale activities from fully supporting military patrons and their communities and 

maximizing sales? If so, what are those barriers and what are your recommendations for improving the environment? 

Admiral BIANCHI. Armed Services Exchange Regulations restrict certain types of 

products offered by the Exchange services thereby restricting Exchanges from offering a wider variety of merchandise to Service Members and their families that are 

already available to the general public. The Navy Exchange Service Command’s 

preference is to eliminate all exchange merchandise restrictions. 

Mr. WILSON. Are there legislative or policy barriers that prevent the military resale activities from fully supporting military patrons and their communities and 

maximizing sales? If so, what are those barriers and what are your recommendations for improving the environment? 

Mr. DILLON. The Marine Corps’ preference is to eliminate all merchandise restrictions imposed by Congress. In the last decade, Congress supported requests to eliminate most of the restrictions on merchandise sold by Exchanges in the United 

States. The Exchanges continue to seek removal of the remaining restrictions, which 

include the size of diamonds and finished furniture selling space. The authority to 

sell a wider variety of exchange merchandise improves our capability to meet the 

needs of members and their families, and to provide goods that are already available 

to the general public. 

We would like to thank Congress, especially this Subcommittee, for all of the support they have shown to the military resale system. We appreciate your continued 

support to protect the Exchange and Commissary benefit that is so vital to Service 

members and their families. 

Mr. WILSON. Are there legislative or policy barriers that prevent the military resale activities from fully supporting military patrons and their communities and 

maximizing sales? If so, what are those barriers and what are your recommendations for improving the environment? 

Mr. GORDON. The Defense commissary system is limited by statute (title 10 

U.S.C. § 2484) as to the products which can be sold. The Department does not recommend any change to the current merchandise restrictions on Commissaries. 

The Department’s preference is to eliminate all Exchange merchandise restrictions imposed by Congress. In the last decade, Congress supported the Department’s 

requests to eliminate most of the restrictions on merchandise sold by Exchanges in 

the United States. The Exchanges continue to seek removal of the remaining restrictions, which include the size of diamonds and the cost of jewelry; finished furniture 

selling space and finished furniture, home furnishings, small appliances, recreational boats and equipment, and power tools. The authority to sell a wider variety of exchange merchandise improves our capability to meet the needs of members 

and their families, and to provide goods that are already available to the general 

public. 

Mr. WILSON. Are there legislative or policy barriers that prevent the military resale activities from fully supporting military patrons and their communities and 

maximizing sales? If so, what are those barriers and what are your recommendations for improving the environment? 

Mr. GORDY. In the view of the Armed Forces Marketing Council, there exist both 

legislative and policy barriers that limit the extent to which military patrons are 

supported by the resale systems and limit sales. 

The Armed Services Exchange Regulations is one such example, particularly the 

merchandise restrictions on CONUS exchanges. Given the dynamic shift to an 

Internet- and mobile-based economy, these restrictions are antiquated and, in some 

cases, are irrelevant (i.e., projection televisions). The Council’s view is that these 

limitations should be eliminated. If not eliminated, then the cost limitations should 

at the least be either increased automatically on an annual basis to keep up with 

inflation or reviewed on an annual basis by the Department of Defense and Congress to ensure the exchanges can provide a wide selection of merchandise to meet 
134 

the divergent needs of military families while also ensuring that the regulations are 

reflective of an ever-changing marketplace. 

We are also concerned that there may exist some limitations on the resale systems that would preclude them from actively and aggressively participating in eand m-commerce or would limit their adaptability in a fast-changing marketplace 

to meet patron needs and demands. We are aware and appreciative of efforts by the 

systems and DOD to take a look at current policies, laws and regulations that 

hinder military resale’s participation in the cyber marketplace and seek remedies 

in order that military resale remains relevant, especially with younger, tech-savvy 

patrons. We look forward to their conclusions and working with them and the Subcommittee to develop new policies and regulations that ensure military resale can 

adapt to new technologies and reach the patron through new and emerging technologies. 

Mr. WILSON. Are there legislative or policy barriers that prevent the military resale activities from fully supporting military patrons and their communities and 

maximizing sales? If so, what are those barriers and what are your recommendations for improving the environment? 

General HENDRICKS. Below are five issues that are currently or will affect the 

service of AAFES to our military patrons: Defense Business Systems over $1M: Section 901 of the National Defense Authorization Act for Fiscal Year 2012, which includes the word ‘‘non-appropriated,’’ could 

be interpreted to include the military exchanges and result in policy that is not conducive to efficient and effective operations. Specifically, an interpretation that creates policy bringing military exchange information technology initiatives under the 

Investment Review Board certification and Defense Business Systems Management 

Committee process would have an adverse impact on our ability to change IT systems to respond to changing customer needs or industry standards to the detriment 

of service members. Military exchanges estimate losses in revenues of $4.9 million 

each month execution of information technology initiatives are delayed through increased oversight, which would reduce dividends available to support morale, welfare and recreation programs. 

We believe AAFES annual IT certification process is sufficient to confirm NAFI 

business systems conform to standards contained in DOD IT Standards Registry 

(DISR) and also provides a process to address deviations or recommendations needed. 

Services Contract Act: Amend the Service Contract Act of 1965 to exclude contracts for retail services for members of the Armed Forces. The Service Contract Act 

provides a minimum wage base for service employees on Federal service contracts. 

The law requires that persons employed to provide services under a Federal service 

contract be paid at prevailing wage rates determined by the Department of Labor. 

An amendment would exclude service contracts entered into by the United States 

to provide retail services to members of the Armed Forces. These are unique contracts to which the United States is a party, but not a beneficiary. The beneficiaries 

of the services are Soldiers, Sailors, Airmen and Marines. While protecting the service employee, application of the Service Contract Act to these contracts artificially 

increases the costs of services under the contract, a cost that is not borne by the 

Government, but rather by the individual warfighter who actually uses the service. 

In some cases, it is difficult to find businesses that will operate on the base, which 

may deny the full range of services offered to the military customer. This amendment would simply put these services on par with other public sector retail service 

operations, which are not required to pay similar minimum wages to their service 

employees. 

New Car Sales: Clarify the current DOD policy to authorize new cars assembled 

in North America (including Mexico) by allowing exchanges to take orders for North 

American manufactured U.S. name-plate automobiles; North American manufactured foreign name-plated vehicles with at least 75 percent U.S. or Canadian content; and motorcycles. North America is defined as the continental United States, 

the District of Columbia, Canada, and Mexico.’’ 

ASER Restrictions: AAFES appreciates the support of the House Armed Services 

Committee/Senate Armed Services Committee in recent years to continue to ease 

merchandise restrictions. The committee’s recent efforts to relax Armed Services Exchange Regulation (ASER) restrictions on TVs, furniture, and diamonds allows 

AAFES the authority to sell a wider variety of exchange merchandise, which improves our capability to meet the needs of service members and their families. 

AAFES will continue to advocate for the relaxation of all merchandise restrictions 

that effectively deny military families the ability to buy a more extensive range of 

products and services from their exchange. Another proposal might be to tie merchandise cost limits to inflation rates which would automatically adjustment to meet 
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the changing needs of the market. In short, we want to minimize the barriers that 

keep military families from making major purchases utilizing the low prices and the 

favorable credit terms that the exchange can deliver. 

Advertising Restrictions: Presently, advertising authority is limited to those products and services the military exchanges are authorized to sell. Expansion of military exchange advertising authority would support efforts to raise awareness of 

quality of life benefits and enhance exchange dividends through further amortization of marketing costs. AAFES proposes that authority be extended to pay advertising for military benevolent organizations, military community cooperatives and 

other commercial organizations that offer products and services that would be of 

benefit to military Service Members. Of course any such advertisements would be 

in accordance with Joint Ethics Regulation, DOD Directive 5500.07–R, which requires advertisements for products and services not authorized for exchange resale 

to include a disclaimer that it does not constitute Department of Defense, U.S. 

Armed Services, or military exchange endorsement. 

Mr. WILSON. Are there legislative or policy barriers that prevent the military resale activities from fully supporting military patrons and their communities and 

maximizing sales? If so, what are those barriers and what are your recommendations for improving the environment? 

Mr. JEU. The Defense commissary system is limited by statute (title 10 U.S.C. 

§ 2484) as to the products which can be sold. The Department does not recommend 

any change to the current merchandise restrictions on Commissaries. 

Mr. WILSON. Are there legislative or policy barriers that prevent the military resale activities from fully supporting military patrons and their communities and 

maximizing sales? If so, what are those barriers and what are your recommendations for improving the environment? 

Mr. NIXON. The American Logistics Association appreciates the support of the 

House Armed Services Committee in fostering an environment wherein resale programs can optimize their ability to support our valued patrons and looks forward 

to working with the Committee in ensuring a responsive and efficient business environment. 

There are several key market and budgetary dynamics that prompt a re-examination of the restrictions that are placed on resale programs. These include: • Effects of increased deployment on military families and the need for on-base 

retail services to be more responsive. • Increased reliance on the National Guard and Reserve that drives changing 

product awareness. • Exchanges offer favorable credit terms that are sensitive to the financial needs 

of military patrons and help insulate military personnel from high-interest offbase merchandisers. • Need for resale agencies to continue to optimize efficiency in operations in order 

to minimize reliance on appropriations and keep prices low for patrons. 

• The need for on-base retailers to be free from restriction in order to rapidly respond to evolving consumer demand. 

• Market dynamics including the proliferation of mass-merchandisers, specialty 

big-box retailers. 

• Increasing electronic commerce options, communications evolution, peer-to-peer 

marketing though social media, and e-commerce rapid supply chain response 

and delivery. 

• Instant price and product comparison technology. 

• And a more well-paid, better educated, brand-conscious, sophisticated, mobile, 

tech savvy, and discerning military shopper demographic. 

ASER Restrictions 

The ALA appreciates the support of the Armed Services Committees of the House 

and Senate to relax Armed Services Exchange Regulation restrictions. We support 

removing all remaining restrictions on the sale of merchandise in exchanges. 

Advertising Restrictions 

The ALA also supports a re-examination and change to the current policies on advertising. Currently, there are limitations on dissemination of sales prices in media 

that can be removed from the store. While we understand the spirit and intent of 

this restriction, the Internet now allows market segmentation where only eligible 

military shoppers can be isolated and informed. This electronic and targeted media 

should be allowed to inform eligible patrons of pricing. 

A family of four can save nearly $7,000.00 per year by shopping at exchanges and 

commissaries with savings in commissaries in the range of 30 to 50 percent and exchange savings above 20 percent. These benefits are the only benefits in the Department of Defense where there is a lower cost per user as volume increases. Therefore, 
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it benefits the overall compensation package when more shoppers are aware of these 

benefits and use them. We therefore encourage a re-examination of the price advertising restriction to allow prices to be disseminated to eligible patrons with targeted 

print or electronic media. 

We are aware of efforts by the resale agencies to review the policy on promotion 

of products and will work with these agencies to ensure patrons are aware of all 

that resale agencies have to offer. 

Service Contract Act Application 

The ALA also supports a re-examination of the application of the Service Contract 

Act to retail services for military patrons. Application of this Act artificially increases costs of services under the contact—costs that must be passed on to military 

patrons. 

New Car Sales 

ALA also supports a correction to the current policy to authorize new cars assembled in North America and allow exchanges to respond to the service members’ 

needs by being permitted to sell North American assembled cars, motorcycles or 

other vehicles. 

IT Modernization 

Further, ALA supports exclusion of nonappropriated fund information technology 

systems from the requirements of Section 901 of the Fiscal Year 2012 National Defense Authorization Act. Including NAF systems under this Act unnecessarily impedes the rapid execution of IT systems that can make exchanges and MWR programs more efficient and responsive to patrons. This would not effect the DOD’s efforts to control duplicative and wasteful IT expenditures on enterprise wide systems 

for human resources, finance, and acquisition which appear to be the problem that 

Section 901 sought to remedy. 

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