The Army and Air Force Exchange Service (AAFES) was established more that 111 years ago to provide the military, their spouses and their families with opportunities to improve their quality of life. Offering exceptional retail opportunities and important day-to-day services, AAFES continues to expand its horizons, tackle new challenges and create convenient ways for its members to celebrate their freedoms.

AAFES is an agency of the United States Department of Defense and operates wherever there is an Army or an Air Force base. The organization functions by running retail stores on military installations, but also provides necessary services such as barber and beauty shops, and laundry and dry cleaning services. AAFES is also undertaking a major program to provide military members with the latest technology in the telecommunications field whereby they can offer wireless phone, Internet access and cable television access on the installations. AAFES believes that creating these opportunities for members of the military and their families not only provides those services that can be obtained off-base, but also is an excellent way to comfort those soldiers who are away from their homes, as well as the families who are without their deployed soldiers.

But operating retail stores is not the entire picture. AAFES is authorized to manufacture goods abroad as well. “Overseas, we operate food plants that do bread, ice cream, water and similar goods,” says Giuffreda. “And it is name brand product. In Europe we make Wonder bread, Baskin Robbins Ice Cream and Culligan water, so that we are not shipping the goods overseas, but we are actually making it in the location.”

In addition to developing and operating retail stores and manufacturing goods, AAFES is a strong financial support to the Army and the Air Force – all of the earnings are put back into the military. The agency uses its money for two purposes: to reinvest in new products and services, and to provide a dividend to the morale, welfare and recreation organizations (MWR). A portion of the money is used for building new stores, creating new retail opportunities and other important needs like upgrading the IT system at its headquarters. Money also is provided to MWR programs and, therefore, used to fund gyms, libraries, day care centers, golf courses, auto hobby shops, pools, intramural programs, sports programs and basically anything that will improve the quality of life for military personnel and their families.

AAFES is a retailer that produces billions of dollars in sales each year. “In 2005 we did $9.6 billion in sales,” says Giuffreda. “About $8.5 billion of that was from direct operations, and the other billion or so is what we call a concession model. In other words, it is a contract we have with someone to be a barber or with someone to run a flower shop. We are a significant retailer, and a lot of people do not recognize the impact of this.”

“Of the military personnel that work on the installation, only 25 percent live on the installation, so about 75 percent of the military live somewhere else,” says Giuffreda. “So we are competing. Yes, they are there during the day when they work, but when they go home at night and on weekends, we are competing with them to come back and shop with us.”

AAFES is currently in the process of creating six pilot retail locations on military bases throughout the country. The hope is that AAFES can bring to the installation all the shops, and extras, that one might find “outside the gate.” The new model being discussed is the type and scope of a traditional lifestyle center much the same as found in the commercial marketplace. The centers will compromise two anchors; one at each end of the development – AAFES will be positioned at one end and the grocery, or commissary, at the other. Between the two anchors will be a Main Street-style center featuring complementary retailers and tenants that are found in lifestyle centers throughout the country. Typical tenants will include a first-run movie theater, a state of the art fitness center, name brand apparel, books, sit-down restaurants and various service tenants. This is the first time such a project has been undertaken within the confines of a military installation and represents AAFES’ devotion to providing the best it can put forth for our military members.

All of the locations are still in the development stage, but AAFES is quickly taking charge and getting involved with the some of the country’s most successful companies. Cypress Equities, a division of The Staubach Company, will serve as a development partner for the Fort Bliss project.

“Working closely to review the potential market with AAFES, we have been impressed by the large disposable incomes available to military families. It translates into tremendous sales volumes achieved by the existing retailers located on the base. The recent realignment of the military onto consolidated facilities has created a large untapped consumer market. We are excited at the opportunity to work closely with AAFES and target this market with community lifestyle retail which provides the soldiers and their families a unique sense of place on the base” says Todd Minnis, director of acquisitions for Cypress.”

Mark De Rose, CEO of Colorado-based developer ServiceStar Development Company, is the development partner for AAFES’ lifestyle center at Ft. Carson in Colorado Springs. “ServiceStar Development Company is genuinely excited by its strategic partnership with AAFES for the development of the Fort Carson Lifestyle Village,” says De Rose. The Fort Carson trade area, with a current ‘captive population’ of over 106,000 people that is expected to increase to 142,000 within the next five years, contains not only active duty military personnel and their family members, but also military retirees, their families and a variety of civilian employees. This diverse, previously untapped population offers a real opportunity for retailers to expand into a new and attractive market through negotiation with a single private developer. And this same opportunity for retail expansion exists at the other military installations throughout the country that are part of the AAFES community development program.”

The size of the development has not yet been finalized, as the projects will be specialized according to their respective markets, but initial talks mention approximately 250,000 square feet of gross leaseable area for lifestyle retailer space, in addition to approximately 200,000 square feet dedicated solely to AAFES.

“AAFES is opening up and giving its military customers more choice, more convenience and the amenities of the lifestyle center that has fountains, outdoor furniture, quality restaurants and entertainment,” says Giuffreda. “There is a tremendous, patriotic story to be told as well, and that is taking care of the military, their families and their spouses that are by themselves in America when the other member is off in places like Iraq for a year doing what they have to do. If we can offer all the comfort and amenities right there where the members live and play, and make it easier for the spouse left at home, we are successful.”

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Stephen O'Kane
Stephen O'Kane is the Associate Editor for Shopping Center Business and Texas Real Estate Business. For more information on Shopping Center Business click here.