When one shops at most military Exchanges today (AAFES, NEX, MCX), one is often impressed with the ambiance and the quality of many of the products.  If Exchanges have improved in appearance over the years to resemble upscale retail operations, it is because of one reason: profit margins. 

In response to an article in which I remarked that “Exchanges today are more of a convenience than they are a savings,” one enlisted soldier wrote: “The Exchanges are now run by civilians and overseen by senior officers who look to make a profit.  They comparison price items so the main difference is you do not pay taxes.” A married E-4 in the Army, stationed in Hawaii, wrote: “While some things are cheaper at the PX, we have found that Sams Club, Walmart, and Cosco are the best places to shop for most of everything you need .” Similar comments were offered by others who felt that those who manage the Exchanges are primarily interested in turning a profit and impressing Service Secretaries with how much money they can contribute to Morale, Welfare and Recreation Funds.

Some people have the attitude that lower Exchange prices were more important in the past when military salaries were lower.  However, while most officers and senior enlisted may be interested in buying designer clothes at prices that are competitive with retail stores like Macy’s and J C Penny whose prices are 25-30 percent higher on such clothing, what about the E-3 with a wife and child who is more interested in saving money on disposable diapers and baby formula?

Those who operate the Exchanges take pride in noting how military personnel save an average of 22 percent when compared to outside retail prices.  This is true.  If you want to buy some imported Waterford Crystal or designer fashions, you will save this amount. However, are the Exchanges in existence primarily to serve officers and senior enlisted who can afford such items?  If one were to do price comparisons with items that are available in some of the places mentioned by the soldier in Hawaii, one would discover that items in demand by most junior enlisted personnel and their families are more reasonably priced in such retail stores.

Consider for a moment an E-3 with a wife and child. At this stage in his married life, he’s probably not going to shop for Waterford Crystal.  Items like disposable diapers and baby formula will probably have a higher priority.  While fifty-six Pampers #1 sell for $11.99 at the Marine Corps Exchange in Quantico, Virginia, the identical product with tax costs $9.70 at the local Walmart for a savings of $2.29 (or 19 percent less than MCX).  One does not have to be a mathematician to recognize that the young Marine and his family are not saving 22 percent by purchasing their disposable diapers at the local base Exchange.

Retired First Class Petty Officer Ray Roland from Bryan, Texas, recalls the  days when enlisted personnel ran Exchanges and Ships’ Stores.  Because the enlisted who ran the stores benefited themselves from the lower profit margins on “basics” and not simply “luxuries,” the stores offered significantly lower prices on all items.  Feeling that Exchanges today cater primarily to officers, Ray believes the military “does not need a General with a million dollar pay check running the Exchanges.” 

A poll was conducted recently over the Internet in which military personnel were asked to vote whether Exchanges should operate at their current profit margins generating money to support MWR operations, or if they should operate like commissaries and sell their products for a small percentage over cost. Over 90 percent of those who participated in the poll voted to have Exchanges operate like commissaries at much lower profit margins.

Those who operate or are employed by Exchanges would differ with this recommendation.  They would argue that profits from Exchange sales greatly benefit MWR operations.  According to Judd Anstey, Media Branch Manager for AAFES that serves the Army and Air Force communities, 68 percent of AAFES earnings ($242 million dollars) were paid to MWR programs in FY04.  This amounted to a per capita dividend of $277 for every Soldier and Airman.  If military personnel supposedly receive a $277 dividend through MWR services, why are they voting to lower prices and reduce profit margins?  The answer is that almost all military personnel do not believe they are receiving $277 worth of services annually from MWR.

Both Exchange and MWR officials would argue that MWR operates Bowling Alleys, Video Stores and other services that could be jeopardized if the cost of products were reduced by lowering profit margins.  The problem is that many MWR operations subsidized by Exchange profits offer products that can be obtained on the local economy for less.  Why rent a video at the MWR contracted base video store when identical videos are available off base for less?  Why purchase your gas on base when local gas stations in some areas offer it for less?

In the past, Exchange profits that were turned over to MWR provided services that offered real bargains.  If a ski trip cost $300 per person, MWR in many cases would subsidize half of the expense, reducing the cost to $150.  When one visits an MWR travel office today, one cannot expect to save $150, let alone $277.

When confronted by a Senate investigating committee over the fact that oil companies earned more than $25 billion in profits in the July-September quarter, Lee Raymond, chairman of Exxon Mobil corporation, attempted to defend his corporation’s huge profits. How many people believed that those huge profits were justified at the expense of most Americans who make far less than the multi-million dollar annual salary of Mr. Raymond?   When flag officers and civilian officials who operate the military Exchange systems boast that their combined contributions to MWR programs in FY04 exceeded half a billion dollars, how many people in the military believe that those profits are justified and necessary to support MWR operations, many of which generate their own profits?

Is it time to rethink the mission of military Exchanges that currently seek “to provide quality goods and services at competitively low prices and generate earnings to support Morale, Welfare and Recreation programs?”   If the Exchanges truly exist to serve military personnel and their families, what is preventing them from selling all of their products for less than other retailers?  Exchange profit margins need to be established in such a way to pay employees, maintain and build facilities, and still offer a small dividend (e.g., 10-20 percent vs. 68 percent of its annual earnings) to support MWR operations that provide free services to military personnel and their families (e.g., libraries, gyms and swimming pools).

According to counselors who work at Family Support Centers, the #1 cause for divorces among young military couples are financial problems.  Apart from generating profits and subsidizing both profit-making and free MWR services, what are the Exchanges doing to help young families financially and lower high military divorce rates?

Unless prices are lowered by changing the profit margins established by the Exchanges, more and more junior personnel and their families who operate on very tight budgets will continue to live from pay check to pay check and be forced to shop online and at local retailers.  Is this really what we want to happen?  Is this really “taking care of our own” and “serving...