Serving Those Who Serve

How the Army & Air Force Exchange Service is keeping up with changing demands and a diverse client base

The Army & Air Force Exchange Service will celebrate 120 years of operations in late July of this year, and its vice president of the real estate directorate, Mike Smietana, has a clear focus moving forward: keeping the Exchange relevant to today’s service members. Meeting this goal will entail many steps, and naturally there will be challenges along the way, but Smietana, who served in the Air Force for 26 years and transitioned to the Exchange after his retirement in 2008, is prepared for them.

A facilities engineer by trade, with an undergraduate degree in civil engineering and masters degrees in business administration and national resource strategy, Smietana now leads the Exchange’s capital-construction program. During his military career, he earned multiple decorations, including the Legion of Merit and several Meritorious Service Medals. Needless to say, he is more than qualified for the task ahead of him. Here, he outlines the Exchange’s unique capabilities, challenges, and goals as it continues to evolve as the largest and oldest military-
exchange service.

Out with the Old …

In its early days, the Exchange operated out of any excess buildings the military could spare. Some of its shops were housed in old horse stables or abandoned hangars, among other structures. “We still have some stores in those facilities,” Smietana says. “Really, we put stores wherever we could. As we’ve matured, we’ve realized it’s better for business if we build one facility as a destination point for customers.”

At the outset, the AAFES often operated out of whatever unused structures it could find on bases, but over the years, it has worked to concentrate its offerings in larger shopping centers. Today, an Exchange typically includes retail, dining, and service options, among others, and this helps draw customers looking to run all their errands in one place.

1900s WWI Exchange Post
1900s WWI Exchange Post
1948 Wiesbaden
1948 Wiesbaden
1974 Andrews
1974 Andrews
1997 Fort Carson
1997 Fort Carson

One of Smietana’s goals is to consolidate older shopping areas into single one-stop shopping outlets. These Exchange-operated shopping centers could feature fast food, laundry, dry cleaning and alterations, military and personal clothing stores, and other concession services (such as barber and beauty shops), making them much more convenient for service members and their families. And, they will sharpen the Exchange’s competitive edge over off-base stores.

The Kaiserslautern Military Community Center (pictured on p. 153) is an example of this type of outlet. It’s an 844,000-square-foot facility on Ramstein Air Base in Germany, and it includes 350 guest rooms, a food court, a multiplex theater, banks, shops, and the main AAFES exchange. “It’s a one-of-a-kind place and a huge draw,” Smietana says. “People come not only from miles away but from other countries to shop there.”

The Needs of the Many

The Exchange serves a diverse customer base, from young soldiers to retirees and family members. Smietana joined the Air Force as a 20-something airman with a wife and child and began using the exchanges pretty much as soon as he enlisted. Later, he frequented them as a senior officer, and now he visits as a retiree. His experience is common among service members and reminds him that the Exchange serves a cast that is diverse in gender, socioeconomic background, rank, age, and, most importantly, daily needs.

At the Fort Belvoir Exchange in Virginia, retirees are a bigger market group, so the AAFES has made sure to provide a number of shops and services that are more important to an older set.
At the Fort Belvoir Exchange in Virginia, retirees are a bigger market group, so the AAFES has made sure to provide a number of shops and services that are more important to an older set.

The organization operates within the United States as well as on international bases, and a service member working in Alabama rarely wants the same things as one working in Afghanistan. “Each situation and installation is different,” Smietana says. “We have to understand that and cater to each demographic.”

At bases with heavy troop placement, such as Fort Hood in Texas or Fort Bragg in North Carolina, the Exchange might cater more to young soldiers with offerings such as exercise equipment and healthy food options. At Fort Belvoir in Virginia, retirees are the biggest market group, so the Exchange brings in more clothing labels and home goods that are important to them.

Under a Watchful Eye

Construction of each Exchange must adhere to Anti-terrorism Force Protection guidelines.
Construction of each Exchange must adhere to Anti-terrorism Force Protection guidelines.

Certain challenges Smietana and his team face are unique to the Exchange. Building retail facilities on military installations involves careful compliance with each base’s security personnel and the Department of Defense, and Anti-terrorism Force Protection measures are significantly higher than commercial construction standards: standoff distances are greater, contractor access is tighter, building costs are higher because the structures need to withstand blast damage, and the complexity of their design is greater. Additionally, troop movements sometimes take the Exchange’s customers away for months at a time or bring in quadruple the normal number, so management of the businesses once they are constructed is not always simple, either.

There are advantages to the Exchange’s model, though. The organization has a very dedicated customer base, and it’s one that the managers know better than any other retailer knows its customers. Shoppers often live on or near the military bases in which the AAFES operates and don’t want to leave just to shop. “We’re more family than anything else,” Smietana says. “I consider myself part of the family, being a customer and employee of AAFES.”

Double Duty

The AAFES is working to bring in more brand-name stores such as Subway and more brand-name products.
The AAFES is working to bring in more brand-name stores such as Subway and more brand-name products.

The AAFES brings in franchises—everything from Victoria’s Secret to Apple to Sony as well as fast-food options such as Burger King, Subway, and Taco Bell. Young shoppers are drawn to brands they can trust, Smietana says, so the Exchange has redoubled efforts to bring in big-name brands and stores. Traditionally, approximately 30 percent of the brands sold in the Exchange’s facilities were national names. In line with its strategic priorities, the Exchange is working to increase that number so that it’s closer to 70 percent. The increased national brand presence, combined with a break from sales tax, provides the merchandise customers want and presents them with opportunities for savings—that is a huge draw.

People also prefer to shop at the Exchange because of its dual mission. Most retailers pocket their profits, but the majority of the Exchange’s earnings are poured back into the military in the form of a dividend. Every branch then receives a piece of the funding, which is earmarked to improve quality-of-life programs for service members and their families. In the past 10 years, the Exchange has generated more than $2.4 billion for such efforts.

“There’s nobody here making big paychecks, no CEO at the top pulling in large bonuses; we exist for the service members,” Smietana says. “That’s why we have customers for life. They know that money spent with us will come back to them.”

The organization is currently on track to have national brands connected with 70% of its offerings—up from 30% traditionally.
The organization is currently on track to have national brands connected with 70% of its offerings—up from 30% traditionally.