Navy Exchange Service Command

3280 Virginia Beach Boulevard
Virginia Beach, Virginia 23452-5724
U.S.A.
Telephone: (757) 463-6200
Toll Free: (800) NAV-EXCH; (800) 628-3924
Fax: (757) 631-3659
Web site: http://www.navy-nex.com

State-Owned Company
Incorporated: 1946 as the Navy Ship’s Store Office
Employees: 20,000
Sales: $1.79 billion (1997)
NAIC: 45211 Department Stores

The Navy Exchange Service Command (NEXCOM) operates various types of retail outlets for the benefits of Naval personnel, retirees, and their families. Some of its stores’ sales volumes are quite high—the Pearl Harbor exchange brings in more than $125 million a year—and the system produces comparable profits to its civilian retail counterparts. However, NEXCOM disburses most of these to Morale, Welfare, and Recreation programs. About a quarter of its exchanges produce little or no profits but are kept open for the benefit of military personnel stationed in remote areas. In January 1998, the system had 116 Navy Exchanges, 207 Ship Stores, 112 Uniform Centers, and 38 Navy Lodges.

Origins

Before onboard stores were established, the only shopping opportunities for sailors on U.S. Navy ships came from bumboats—small local vessels peddling sundry overpriced merchandise. In 1896, the first unofficial canteen was created on the USS Indiana to sell beer. As the ships traveled, paymasters sometimes neglected to pay the canteens’ vendors, resulting in something of an image problem for the Navy.

The Naval Appropriations Act of March 3, 1909, authorized the first official, nonprofit ships stores and commissaries. Although subsequent legislation outlawed bumboating, a collection of enterprising tradesmen began offering sailors personal services such as haircuts and shoe repair through something known as the ships service. This soon developed into alternate retail outlets as well. In 1923, ships service stores were sanctioned and made the responsibility of the Bureau of Navigation, later called the Bureau of Naval Personnel. The official ships stores remained under the Bureau of Supplies and Accounts.

Space became scarce as the Navy expanded between the wars. In 1943, a ship store and a ship service store were combined aboard the USS Boston under the direction of the Bureau of Supplies and Accounts, a pattern later followed on all ships with supply officers. Service stores on land remained in the hands of individual commanding officers, however.

In 1945, a committee was created to design a centralized system of retail outlets. Captain Wheelock H. Bingham, later president of R.H. Macy & Co., headed the group, which recommended bringing the land-based retail activities under the control of the Bureau of Supplies and Accounts. The Navy Ship’s Store Office (NSSO), precursor of the Navy Exchange System, was created on April 1, 1946 to manage these stores.

NSSO’s first headquarters was located at 116 E. 16th Street in New York City but it soon moved to Brooklyn. Its staff numbered about 90; the first officer in charge was Captain T.L. Becknell, Jr. NSSO’s mission comprised two parts: providing quality goods and services at low cost and supporting welfare and recreation funds with its profits. In 1949, NSSO received authority to manage ship stores afloat. The same year, the Philbin Committee made several important recommendations: ships service stores were to be renamed Navy Exchanges and limits were placed on pricing and merchandise selection. For example, the exchanges were to carry two brands of chewing gum and cigarettes. Forbidden were furs, vacuum cleaners, and power tools, among other things.

Innovations in the 1950s

In 1950, NSSO assumed control of the exchanges of the Military Sea Transportation Service (MSTS), whose vessels carried military personnel, their families, and immigrants. MSTS had 60 exchanges on ships and four at major seaports.

A West Coast branch was established in Oakland in August 1952. NSSO created a Commissary Store Division in 1955. Its low-cost supermarkets and the branch stores it managed became immediately popular with military families.

As the number of customers declined with postwar demobilization, a number of innovations sought to make the stores more inviting and convenient. Self service was added; previously, clerks had assembled orders. NSSO’s mobile canteens delivered temporary food service to recreational events. NSSO even set up a store in Antarctica to supply Admiral Byrd’s Antarctic expedition.

By its tenth anniversary in 1956, NSSO had had more than $2 billion in total revenues, $126 million of which was given to welfare and recreation programs. Beginning in 1958, the types of stores operated were reduced to two. All stores selling groceries became commissaries; those without, exchanges. The next year, NSSO acquired one of the first Remington Rand UNIVAC computers for handling its considerable accounting functions.

Automation During the 1960s

On the first day of 1960, NSSO took over the Naval Uniform Shop, a centralized, made-to-measure operation. It began stocking Navy Exchanges with officers’ and chiefs’ uniforms. Enlisted men’s clubs came under NSSO control in 1961. NSSO also sponsored movie theaters and an overseas entertainment circuit. It started its Navy Guest House Program, aimed at remedying a shortage of temporary housing, in 1964. Edward E. Carlson, who would lead both Westin Hotels and United Airlines, was a distinguished advisor to the Navy Lodge program.

After reducing the number of nonfood items carried and expanding their assortment of kosher foods, larger commissaries installed Robot XI computers to automate inventory management in 1967. Meanwhile, management of Navy Exchanges was streamlined and refined. Payroll began to be processed centrally. An award-winning training film was coproduced with the Eastman Kodak Co. in 1967.

A Navy Exchange Service Center patterned after commercial retailers’ supply depots opened in 1969 in San Diego. That year, the Yokosuka exchange began distributing a mail-order catalog to personnel in Vietnam. NSSO soon sold all its exchanges there to the Army Air Force Exchange Service. In 1969, the Bureau of Naval Personnel launched the Navy Lodge Program, which would double NSSO’s temporary lodging capacity. After a period of new construction on facilities in Virginia, Guam, and California, the Guantanamo Bay Navy Exchange burned to the ground in 1969. Facilities in Brooklyn, New York, and Glenview, Illinois, were also lost to fire.

NSSO’s annual revenues exceeded $1 billion at the time, making the organization one of the top 25 retailers in the United States. Navy Exchanges accounted for $706 million of revenues. One declining area of sales was the operation of MSTS Exchanges, as more service families chose airliners over military surface vessels. MSTS was renamed the Military Sealift Command in 1970. NSSO ended the decade with its own new name: Navy Resale System Office (NRSO).

Further Developments: 1970s

Navy Exchange gas stations had to cope with worldwide fuel shortages in the early 1970s, though they were limited in the savings they could offer patrons by the Federal Energy Administration. The system’s hair salons evolved beyond the traditional barber shop and commissaries began selling health and beauty products for the first time. NRSO introduced fast food through delis, pizza parlors, and ice cream shops. Dependent support ships brought retailing to fleets separated from permanent exchanges.

As consolidated procurement exercised NRSO’s buying power, retail outlets experimented with the popular shop-within-a-shop department store concept. The Standard Automated Accounting and Merchandising System (SAAMS), unveiled in 1975, and electronic cash register systems provided a new level of efficiency overall.

Systemwide employment reached 31,000 in the 1970s. Legislation brought wages and working conditions for many Navy Exchange personnel more in line with those in the private sector. This and cost of living increases significantly raised payroll expenses. Inflation raised wholesale prices; however, both exchanges and commissaries maintained a policy of not marking up items already on the sales floor.

Authority for enlisted clubs was transferred to the agency responsible for messes in 1977. Entertainment offered at the clubs had become increasingly sophisticated before the transition. Food represented a more significant component of club sales. By 1977, the Navy Exchanges had assumed control of all retail uniform stores from the Naval Uniform Shop, which retained its mail-order operation. Uniforms themselves had undergone a few changes. A new, short-lived enlisted uniform appeared in 1972, and maternity uniforms arrived in 1978. Video games were instantly popular when first installed on ships in 1979. NRSO was again renamed in 1979, becoming the Navy Resale and Services Support Office (NAVRESSO).

Company Perspectives:

From enlistment through retirement, throughout their careers and throughout the years, we have been there for our Sailors, and we are here today. With 123 Navy Exchanges, 218 Ships Stores, 112 uniform shops and 42 Navy Lodges, we continue to serve the worldwide Navy Community.

We are where our customers are in Bahrain; in Keflavik, Iceland; in Guantanamo Bay, Cuba; and on the high seas. For 50 years, our quality of life mission has included operating in remote locations, providing quality merchandise at a savings and distributing a large percentage of our profits to Morale, Welfare and Recreation funds.

Private Labels and Joint Agreements: 1980s

Due to rising property costs as well as crime rates, NAVRESSO moved its headquarters from Brooklyn to Staten Island in 1981. NAVRESSO’s scope of operations continued to expand during the decade. It assumed responsibility for school lunch programs of dependent children overseas in 1980.

The Navy Resale System and AAFES merged their mailorder catalogs in 1981. The next year, NAVRESSO introduced its own private label program. The Navy Exchange brand offered commonly used items at a discount. The Harbor View line of men’s and women’s clothing was introduced in the mid-1980s. Other products followed, including health and beauty products and Harborware cookware.

In 1984, McDonald’s signed an agreement with NAVRESSO to open 75 restaurants at Navy bases around the world. In return for the concession, the restaurants’ independent owners agreed to pay royalties to the Navy Exchange program. Vie de France Corp., a bakery chain, entered into a similar agreement in 1986. The Navy Lodge program was expanded in the mid-1980s, gaining a central toll-free reservation center.

Legislation in 1987 transferred more of the responsibility for the Navy’s Morale, Welfare and Recreation Fund from Congress to NAVRESSO, which simultaneously received authority to manage liquor stores and various coin-operated concessions such as pay phones. Naval reservists were granted limited shopping privileges that year. NAVRESSO also instituted a policy of garnishing wages for bad checks.

The 1990s, Preparing for the Future

Commissaries boasted three times the sales per square foot of civilian supermarkets. More civilian managers were being hired as Navy expansion plans drew their personnel. However, management of all military commissaries was turned over to the new Defense Commissary Agency in 1991. Several large Navy Exchanges were also lost due to base closings, and several facilities in the Pacific were damaged by storms.

NAVRESSO was renamed the Navy Exchange Service Command (NEXCOM) in June 1991. With mounting competitive pressures from private sector retailers and outdated equipment, NEXCOM had begun the process of consolidating its supply offices and cutting personnel. It relocated from New York to Virginia Beach in 1993 to help save costs. The Ship’s Stores Program moved to Norfolk, Virginia, in 1993.

Next, NEXCOM focused on updating and streamlining its data processing. Buying, distribution, and other functions were more centralized as well. NEXCOM consolidated six warehouses into a new distribution center in Chino, California. Business process reengineering accompanied these improvements. Updating these systems required a $64 million investment.

The first NEX Video stores, a cooperative enterprise with AAFES, appeared in 1992. A bulk-packaged warehouse concept similar to Sam’s Club—NEX Club—was tried for a couple of years in Alameda, California. NEXCOM was more successful with its fast-food brands. Within a couple of years, the Mr. Roberts in-house hot dog franchise went from a couple of weenie carts in Puerto Rico to a foodservice unit with annual sales of more than $1.5 million. The Pizza Galley, another in-house franchise, also exceeded $1 million in sales that year. The use of food vending machines was stepped up in 1993 with the introduction of AAROs, or automated auxiliary retail outlets.

Subway, Dunkin’ Donuts, and Taco Bell were among the well-known restaurant franchises setting up shop on base. McDonald’s renewed its contract in 1994. One manager reported that the name brands doubled foodservice sales at retail stores. An Applebee’s restaurant opened at Naval Station Norfolk in March 1998.

Although the Navy’s active duty population shrank by 15 percent between 1992 and 1994, exchange sales fell less than three percent. Private label brands proliferated, including Sea Soda, Andrea’s Closet and New Crew apparel for young men and women, Bristol House men’s clothing, and Elysian Fields lingerie. In 1994, Congress gave the system control of federally owned Stars and Stripes bookstores overseas. Sailors at sea eagerly welcomed the telephones, ATMs, and American Greeting Card machines that were installed in Ship’s Stores in the mid-1990s. These stores accounted for $70 million of NEXCOM’s total sales.

NEXCOM continued to add new types of ventures. The first Navy Exchange optometry clinic opened in Norfolk in 1995. AT&T signed a comprehensive, worldwide contract in December 1995, covering all types of telecommunications services. The ten-year license provided for pay phones, phones in dorms and Navy Lodges, and calling cards. Discover Card parent company Novus issued the NEXCOM-sanctioned Bravo and Private Issue credit cards in 1995.

In the late 1990s, NEXCOM unveiled the Basic Concepts private label line, which attempted to meet customers’ needs for low-cost apparel. Navy Exchanges also retailed their own line of children’s school uniforms. Apparel and accessories accounted for more than 20 percent of NEXCOM’s revenues.

Key Dates:

1896:

First canteen is established on the USS Indiana.

1909:

Naval Appropriations Act authorizes first official ships stores and commissaries.

1946:

Navy Ship’s Store Office is created.

1952:

NSSO forms West Coast branch.

1960:

NSSO takes over Naval Uniform shop.

1984:

McDonald’s signs agreement to build franchise restaurants at Navy bases around the world.

1991:

Commissaries are transferred from NEXCOM to new Defense Commissary Agency.

1993:

NEXCOM relocates to Virginia Beach.

NEXCOM operated 123 Navy Exchanges, 218 ships stores, 112 uniform shops, and 42 Navy Lodges at the time of its 50th anniversary in 1996. It had disbursed nearly $2 billion to Morale Welfare and Recreation funds. This also marked the 100th year since the founding of the first canteen on the USS Indiana. Total NEXCOM revenues were $1.79 billion in 1997. Navy Exchange contributed $1.66 billion. Navy Lodges had billings of $39.8 million while Ship’s Stores and onboard vending sales brought in $16.9 million.

Principal Divisions

Navy Exchanges; Navy Lodges; Ship’s Stores.

Principal Competitors

Wal-Mart Stores, Inc.; Kmart Corporation.

Further Reading

“For NEXCOM, a New Network That’s Really, Really Secure,” Chain Store Age Executive with Shopping Center Age, July 1995, p. 38.

Pellet, Jennifer, “Storing the Seven Seas,” Discount Merchandiser, June 1995, p. 28.

Ratliff, Duke, “NEXCOM Merges Distribution,” Discount Merchandiser, April 1996, p. 23.

Ross, Jacqueline, Fifty Years of Serving You: 1946–1996, Virginia Beach, Va.: Navy Exchange Service Command, 1996.

Stankevich, Debby Garbato, “Branding the Burger,” Discount Merchandiser, September 1997, pp. 78–81.

——, “Seas of Green,” Discount Merchandiser, February 1999, pp. 88–90.

—Frederick C. Ingram