April 1, 2005, 12:00 AM

Operation Online

(Page 2 of 2)

The 6-inch catalog

All catalog merchandise--as well as thousands of additional items not listed in the book--are sold online. "The catalog would be six inches thick if it included all AAFES products, and the production expense would be exorbitant," he says. "The dot-com is a more cost-effective way to list and sell goods."

Indeed, Westphal attributes the Exchange Online Store`s solid revenue growth in part to the increasingly larger assortment of items available through its web site.

Most brick-and-mortar locations range from 25,000 to 130,000 square feet and lack the space to hold all the products needed to accommodate AAFES` diverse customer base, he says. Shoppers include active duty and retired military personnel ranging from privates to generals and their families, reservists and National Guard members.

The Army and Air Force Exchange Service operate 3,150 stores around the globe, including 52 newer facilities in Iraq, Afghanistan, Qatar, the United Arab Emeritus, Kyrgyzstan, Uzbekistan and Djibouti. More than $3 million worth of merchandise ordered online last year was shipped to personnel serving in Operations Iraqi Freedom and Enduring Freedom in those countries. Store managers in the Middle East and elsewhere also will place online orders for customers without Internet access.

In addition to making it easier for members to obtain products, the Exchange Online Store also is being positioned by AAFES as a key vehicle for determining if there is sufficient customer interest in specific items to warrant their inclusion in on-base stores.

Some of the organization`s newer operational methods will likely mimic the best practices of leading online sellers, and could include addition of technologies that make web sites more functional and user friendly, Westphal says.

Mirroring

"It is important to mirror what competitors are doing to successfully grow their businesses," he notes. "Companies such as Wal-Mart, Target, Nordstrom and Neiman Marcus have an advantage because they typically target distinct customer segments. We must focus on all consumer groups and market goods that cover all price points."

About 80% of AAFES product orders are generated online, and Westphal says he expects the web to account for 82% of orders by 2006. The remaining orders are placed by telephone or mail.

One of the necessities for continued growth is staying current with the most efficient operating strategies and tools, he adds. The Exchange Online Store currently is replacing its legacy systems with newer-generation hardware and software so orders can be initiated and processed more quickly.

Westphal will only say that AAFES has spent "several million dollars" to build and maintain its processing systems, and that the operation remains profitable.

The organization, meanwhile, has created a foundation that is likely to result in continued expansion, Okamura says. He notes that the executive management team in AAFES` early years took direct marketing courses to be more astute in targeting members.

Head-to-head

And as additional customers move farther away from brick and mortar facilities, the online store will become an increasingly important shopping vehicle.

But the Exchange Online Store still faces the daunting task of competing for business with highly recognizable and experienced Internet sellers. "Going head-to-head with formidable retailers, such as Wal-Mart, or savvy e-commerce companies, including Lands` End, is a major challenge for AAFES," Okamura notes. "Especially because some traditional retailers also target the military sector."

He adds, however, that AAFES is keeping up with the industry`s growth pace. "Being able to offer multiple buying channels to members makes perfect sense because of AAFES` far-flung customer base," Okamura adds. "Providing convenience is a key and effective selling point."

Richard Mitchell is a Wilmette, Ill.-based freelance business journalist.

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