MISSION REPORT

Supporting readiness, resiliency, retention and recruitment while bolstering lethality at all touchpoints

2018

YEAR IN REVIEW

A Force Multiplier for Readiness, Resiliency, Recruitment and Retention

The Army & Air Force Exchange Service is the Department of Defense’s largest retailer—ranked 61st among all U.S. retailers. We are not a private company. We are not a contractor. We are a DoD organization that improves military readiness, wherever service members and their families serve.

The Exchange exists to maximize the well-being of the military community. The Exchange funds its operations from customer revenues, except for 3% of its budget, which is paid from tax dollars to ship goods to service members overseas, as required by law. The resulting earnings are 100% returned to military communities as dividends to Quality-of-Life programs or reinvested in the Exchange’s infrastructure. Simply put, the Exchange is a great deal for the Department of Defense, American taxpayers, and all who serve and have served.

During 2018, the Exchange took care of Soldiers, Airmen and military families by supporting their readiness, resiliency and quality of life. The Exchange’s financial performance highlights the nearly 124-year-old benefit as a force multiplier, contributing to recruitment and retention of our Nation’s Warfighters.

In 2018, the Exchange increased revenue by $60 million to $8.7 billion with $386 million in dividend-eligible earnings. Earnings rose 8% from 2017, leading to $223 million in dividends (vs. $219 million in 2017) to support critical Quality-of-Life programs such as Army Child Development and fitness Centers, Air Force Outdoor Recreation and more.

For years, the retail climate has been challenging, but the Exchange remains all in to support Warfighters and families through an earned non-compensation benefit, which provides competitively priced, tax-free shopping.

The strategies the Exchange executed in 2018 have been instrumental in protecting and preserving this critical benefit for military communities around the world. For example:

• Veterans found a home at ShopMyExchange.com, helping boost online sales by nearly 18% over 2017.
• The BE FIT program is thriving, keeping Soldiers and Airmen fit to fight with better-for-you choices in Express convenience stores and restaurants, fitness gear in store and on ShopMyExchange.com and wellness services like optometry, dentistry and cryotherapy.
• The MILITARY STAR card continues to add value, generating $471 million in direct benefits for military customers.

At the tip of the spear, the Exchange’s passion for those who serve comes alive. No other retailer can do what we do—especially for Warfighters serving far from home. In 2018, the Exchange supported more than 155,000 troops in major military exercises and operations, bringing a lifeline to Eastern Europe, Southwest Asia, Africa and other austere locations.

The Exchange’s singular mission to serve the military community worldwide—and return all earnings to the community—cannot be matched by any commercial player. 2018 was a fantastic year. Looking forward to what this team will continue to accomplish to support the readiness and resiliency of Soldiers, Airmen and military families for years to come.

Army Strong! Air Force Strong! Exchange Strong!

Director/Chief Executive Officer

A Force Multiplier for Readiness, Resiliency, Recruitment and Retention

The Army & Air Force Exchange Service is the Department of Defense’s largest retailer—ranked 61st among all U.S. retailers. We are not a private company. We are not a contractor. We are a DoD organization that improves military readiness, wherever service members and their families serve.

The Exchange exists to maximize the well-being of the military community. The Exchange funds its operations from customer revenues, except for 3% of its budget, which is paid from tax dollars to ship goods to service members overseas, as required by law. The resulting earnings are 100% returned to military communities as dividends to Quality-of-Life programs or reinvested in the Exchange’s infrastructure. Simply put, the Exchange is a great deal for the Department of Defense, American taxpayers, and all who serve and have served.

During 2018, the Exchange took care of Soldiers, Airmen and military families by supporting their readiness, resiliency and quality of life. The Exchange’s financial performance highlights the nearly 124-year-old benefit as a force multiplier, contributing to recruitment and retention of our Nation’s Warfighters.

In 2018, the Exchange increased revenue by $60 million to $8.7 billion with $386 million in dividend-eligible earnings. Earnings rose 8% from 2017, leading to $223 million in dividends (vs. $219 million in 2017) to support critical Quality-of-Life programs such as Army Child Development and fitness Centers, Air Force Outdoor Recreation and more.

For years, the retail climate has been challenging, but the Exchange remains all in to support Warfighters and families through an earned non-compensation benefit, which provides competitively priced, tax-free shopping.

The strategies the Exchange executed in 2018 have been instrumental in protecting and preserving this critical benefit for military communities around the world. For example:

• Veterans found a home at ShopMyExchange.com, helping boost online sales by nearly 18% over 2017.
• The BE FIT program is thriving, keeping Soldiers and Airmen fit to fight with better-for-you choices in Express convenience stores and restaurants, fitness gear in store and on ShopMyExchange.com and wellness services like optometry, dentistry and cryotherapy.
• The MILITARY STAR card continues to add value, generating $471 million in direct benefits for military customers.

At the tip of the spear, the Exchange’s passion for those who serve comes alive. No other retailer can do what we do—especially for Warfighters serving far from home. In 2018, the Exchange supported more than 155,000 troops in major military exercises and operations, bringing a lifeline to Eastern Europe, Southwest Asia, Africa and other austere locations.

The Exchange’s singular mission to serve the military community worldwide—and return all earnings to the community—cannot be matched by any commercial player. 2018 was a fantastic year. Looking forward to what this team will continue to accomplish to support the readiness and resiliency of Soldiers, Airmen and military families for years to come.

Army Strong! Air Force Strong! Exchange Strong!

Director/Chief Executive Officer

BOARD OF DIRECTORS

Per Army Regulation 215-8/Air Force Instruction 24-211 (I), the Secretary of the Army and the Secretary of the Air Force have oversight responsibility of the Army & Air Force Exchange Service Board of Directors and exchange operations.

Aundre F. Piggee

LTG & ChairmanDeputy Chief of Staff, G-4, HQDA

Brian T. Kelly

Lt Gen & Vice ChairDeputy Chief of Staff, Manpower, Personnel & Services

Tom C. Shull, SES

Director/CEO, Army & Air Force Exchange Service

Gwendolyn Bingham

LTGAssistant Chief of Staff for Installation Management (OACSIM)

Thomas A. Horlander

LTGMilitary Deputy for Budget (HQDA ASA FM)

Daniel A. Dailey

SMASergeant Major of the Army

Kaleth O. Wright

CMSAFChief Master Sergeant of the Air Force

Steven W. Ainsworth

MGCommanding General 377th Theater Sustainment Command (AFRC-SLA-CG)

John M. Pletcher

Maj GenDeputy Assistant Secretary of the Air Force, Budget (SAF/FMB)

Kimberly K. Toney, SES

Executive Director, Air Force Personnel Center (AFPC/CA)

Donald G. Salo Jr., SES

Deputy Assistant Secretary of the Army (Military Personnel/Quality of Life)

John N. Tree

Brig GenMobilization Assistant to the Director for Logistics, Engineering & Security Cooperation (PACOM/J4)

Horace Larry, SES

Director, Air Force Services

MILITARY COMMUNITY SUPPORT

Mission support

Retail

Veteran and spouse employment

MILITARY STAR® credit card. Serving all military branches and Defense Commissary Agency customers.

$2.3B in support to Quality-of-Life programs in last 10 years

FINANCIAL HIGHLIGHTS

Despite an 11% troop drawdown since 2011 and fierce online competition, the Exchange has improved, producing significant earnings for the military community.

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Total 2018 Revenue Composition

CONVENIENCE

35%

MAIN STORE

27%

MALL

16%

Restaurant/Food

11%

(Direct & Concession)

E-COMMERCE

4%

MILITARY CLOTHING

4%

MILITARY STAR

3%

% SALES ON MILITARY STAR CARD

16%

(Penetration)

MEETING TROOPS’ NEEDS QUICKLY, WHEREVER THEY GO

“The process was extremely simple. I put in the request for the MFE on Monday, and by Thursday the store was up and running and serving the troops. We’re very thankful to the Exchange team for their hard work to provide this taste of home for the troops.”

Col Julie Newlin

355th Mission Support Group commander

“We were on meals ready to eat for the first 10 days…. The MFE means a little taste of home, a little bit of normalcy and routine.”

CPT Lauren Blanton

19th Engineer Battalion

When nearly 4,000 troops were sent to Texas and Arizona in 2018 for border support operations, the Exchange went with them.

The Exchange opened a 53-foot mobile field Exchange (MFE) to serve troops in Sunglow City—a tent city at Arizona’s Davis-Monthan AFB.

The MFE was on site, fully stocked with shampoo, socks, pillows, flashlights, batteries, snacks, drinks, sandwiches and other supplies. The Exchange-on-wheels served a long line of Soldiers, Airmen, Marines and National Guard members.

On Nov. 14, the Exchange opened an MFE at Base Camp Donna in South Texas for border support operations. Installation commanders ordered the MFE four days before. The MFE closed Dec. 12, but not before logging more than 6,000 transactions for 500 troops.

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WHEN DISASTER STRIKES

Throughout 2018, the Exchange served troops helping communities and military installations recover from natural disasters including hurricanes, typhoons and an earthquake.

Just days after Hurricane Michael devastated Tyndall Air Force Base in October, only one retailer—the Exchange—was open within miles of the installation.

For six weeks, an Exchange on wheels served hundreds of service members rebuilding the installation after the storm.

The 53-foot mobile field Exchange stocked with emergency supplies, toiletries, drinks and food demonstrated the Exchange’s capability to quickly deploy at command request.

After Tyndall took a direct hit from the storm, the heavily damaged main store and two Expresses closed, but the fully stocked MFE brought the Exchange mission to life.

Fuel, too, was available within days. The Exchange secured 55,000 gallons over six weeks. Even months later, the nearest town’s gas stations still had no fuel—but the Exchange’s supply stayed constant.

Six weeks after Michael’s landfall—and in time for Thanksgiving—Tyndall’s main Exchange reopened, an important step in the installation’s recovery.

For TSgt Jody Brennan, who deployed from Scott Air Force Base to assist with rebuilding, the Exchange’s reopening was an important milestone:“For Airmen who are stationed here, the Exchange’s opening brings a sense of returning back to normalcy.”

TSgt Jody Brennan

CONUS By The Numbers

300,000 emergency supplies sent to Exchanges after hurricanes Florence and Michael

43,000 supplies sent to Joint Base Elmendorf–Richardson after an earthquake in December

0% financing offered by MILITARY STAR for customers in the Carolinas and Florida

Pacific Region By The Numbers

9 typhoons

2 hurricanes

30,000 bottles of water sent to Hawaii before Hurricane Lane

2,800 other emergency supplies sent to Hawaii

TIP OF THE SPEAR

From Africa to El Salvador to Korea to Poland, the Exchange supported military exercises around the world involving more than 155,000 U.S. and allied troops.

Deployments to the tip of the spear bring potential danger.

At Afghanistan’s Bagram AB, a rocket struck the Warrior Exchange at 2:21 a.m. Aug. 21. Fortunately, the store was closed, and nobody was inside. The store reopened two days later.

We Go Where You Go

“They did a remarkable job in trying circumstances to ensure our Warfighters were served. They worked incredibly long hours to get the store open. They came together as a team and were true examples of the Exchange core value family serving family.”

Jason Rosenberg

Senior Vice President Exchange Europe/Southwest Asia Region

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By The Numbers

33 countries where the Exchange operates

15+ major military exercises and operations throughout Europe and the Pacific

163,000 troops supported daily with an internet connection to family and home

86,000 troops supported in Europe, Africa & Southwest Asia

70,000 troops supported in the Pacific

2018: THE EXCHANGE BENEFIT IN ACTION

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2018 Mission Report

A pdf version of the report can be downloaded below.The pdf version also contains the EY Financial Statements.

Download the 2018 Mission Report