THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Monday, November 14, 1994 TAG: 9411120105
SECTION: BUSINESS WEEKLY PAGE: 10 EDITION: FINAL
TYPE: Cover Story
SOURCE: BY PAIGE FLEMING, SPECIAL TO BUSINESS WEEKLY
DATELINE: VIRGINIA BEACH LENGTH: Long : 206 lines
A sense of controlled urgency swirls through the room. Clothing vendors make final changes to racks of apparel that buyers will pick through with the professional discernment of top fashion designers.
Bagels and coffee sit on a silver tray among a group of men and women who earnestly discuss the hottest Christmas toys.
Welcome to the offices of one of the largest retail chains based in Virginia.
This is the U.S. Navy Exchange Service Command, a $2.2 billion retail enterprise that relocated a year ago from Staten Island, N.Y.
Nexcom's stores throughout the world supply Navy families and retirees with everything from Liz Claiborne dresses to Colgate toothpaste.
While it sounds like simple military logistics, Nexcom puts Tidewater on the map for fashion and consumer sales representatives who regularly show their wares in the Virginia Beach headquarters.
Nexcom's exchanges can be nettlesome for retailers in malls and shopping centers who contend that Navy families spend money in exchanges rather than in conventional stores.
Although that can decrease local store revenues, economists such as John Whaley of the Hampton Roads Planning District Commission point out that by opening in Tidewater with about 600 employees, Nexcom has brought the region a significant payroll that it otherwise would not have.
Navy officials said they must strive to win customers just like any other major retailer. In fact, competition and customer service have become Nexcom's buzzwords. The typical family can save 18 percent shopping at a Nexcom facility compared to a civilian store, but the Navy figures it must have the right price and the right merchandise.
``Ten years ago we were the best game in town, the best deal in town,'' said Rear Adm. John T. Kavanaugh, head of Nexcom. ``Now with Wal-Marts and other competitive retail outlets, that isn't always true anymore. Now we have to make up for that with improved customer service. We search for shortfalls.''
Here's a glimpse of the Navy enterprise.
It's another weekday in the Nexcom offices. The second and third floors buzz with excitement. A labyrinth of movable gray cloth walls create cubbyhole after cubbyhole.
These offices are filled by Nexcom employees known as buyers. Hired to select apparel and goods that will appeal to customers at Navy facilities throughout the world, the buyers look at samples of merchandise brought in by sales representatives.
Western wear hangs from the wall of one cubbyhole. Sample football jerseys fill another. Toy animals, balls and other fun stuff for children crowd another.
Down the hallway is the quiet space of accountants. Corporate lawyers housed behind a long gray wall hunch over contracts and orders.
This multibillion-dollar enterprise may be a military venture, but like any civilian retailer, Nexcom tries to please its customers.
Nexcom runs a worldwide chain of stores for the Navy that sell goods and services to Navy personnel both ashore and afloat. The stores stock anything a family might need. Some stores are much like 7-11's - mainly for convenience, a place where soap, toothpaste, diapers and sodas are readily available at prices affordable on enlisted pay.
Other exchanges are like malls that have flower and barber shops, electronics and computer stores, food courts and department stores.
Headquartered in a medium-rise building near a car dealership on Virginia Beach Boulevard, Nexcom's unassuming presence belies its sophisticated operation. Decisions are made daily that result in orders being placed for millions of dollars worth of goods.
Despite Nexcom's size, its officials describe their business at once as larger and smaller than a mega retailer like Sears or Wal-Mart.
``We think of ourselves as larger than any one kind of store in one sense because the Navy exchanges provide more services than Wal-Mart or other like stores,'' said Capt. James E. Jaudon, a vice commander at Nexcom.
``We sell gasoline, telephone services, clothes, perfume, toys, housewares, towels, shoes, appliances, electronics and computers,'' Jaudon said. ``We provide video rental stores, flower shops, portrait studios - everything a Navy family might need.''
Nexcom also tries to bring a slice of American life to far-flung Navy bases abroad.
``While we have an objective to make money, our basic mission is to provide for the welfare of and quality of life for Navy families. We fill our customers' needs,'' said Cmdr. Ned Lundquist, Nexcom public relations head.
In that way, Nexcom is limited and smaller than a civilian retail store because growth is oriented to a specific market, Jaudon added.
Jaudon says there are other differences between Nexcom and civilian stores. For example, a profitable store in a retail chain would not be closed, although Nexcom has shut profitable exchanges.
``Usually no matter how well an exchange is doing, if the base closes, so does the exchange,'' Jaudon said. ``A civilian store would not do that.''
However, an exchange might stay open after a base closes if many retirees are nearby. They ``are our people and we support them,'' Jaudon said.
Nexcom headquarters moved to Virginia Beach from New York in September 1993. ``We were close to clothes manufacturers and other vendors, but no one wanted to come to Staten Island,'' Kavanaugh said.
``It was difficult to get people interested in living there. Cost of living was high, there were long commutes and lots of traffic,'' he said. ``So we looked at (other possibilities) for a long time. Initially we wanted to go to Jacksonville, Fla. Then the parent command took an independent look at cost effectiveness'' and decided Tidewater offered a substantial savings.
The move cost Nexcom $8 million, although it estimates it will receive substantial savings through consolidation and increased cost effectiveness.
``We realized more than $4 million (in savings) our first year,'' Kavanaugh said. ``We consolidated lots of things, cut about 150 people and $2 or $3 million in salaries. Plus the cost of living is less. We had almost 900 people in the New York headquarters; now it's down to 600 when you count apples to apples.''
Overhead was too high in New York, and the idea that you had to be in New York to be close to the apparel industry was no longer true, Kavanaugh said. The market is now anywhere you want it to be.
The Navy Exchange system includes 135 stores both large and small, the Navy Lodge system representing 2,300 hotel rooms in 41 lodges worldwide, about 250 ship's stores and the Navy Uniform program.
Nexcom's impact is evident in the Hampton Roads economy. About 400 of Nexcom's 600 employees in Tidewater are civilians.
``The civilian jobs are an important addition to the economy here,'' said economist Roy Pierceson of the College of William and Mary.
Economists estimate that personal spending by the 600 Nexcom employees provides jobs for another 900 to 1,500 people in the region ranging from dry cleaners to supermarket clerks.
Customer service and satisfaction are Nexcom's main goals.
``We try to emulate private business as much as possible,'' Jaudon said. ``We're more commercial and less government-oriented in that respect . . . but there is a different motivation than a private business. We have to cater to a range of clientele from young marrieds to admirals. We have to satisfy someone making $300 a week as well as someone making $2,000 a week.''
In the past, some customers complained that exchanges provided high-end selections such as Liz Claiborne, Estee Lauder, Brooks Brothers, Coach and Pierre Cardin. And there were plenty of economy choices called Super Value buys.
But there was not a comfortable middle selection. This has been answered in part by introducing more private labels, Kavanaugh said.
``These are quality items made by national manufacturers that we put our own labels on,'' Kavanaugh said. ``We tell them what we want and they make it.''
The stores monitor customer satisfaction through boxes where shoppers can comment about any aspect of the store. Comments are collected daily.
``I'm big on feedback,'' Kavanaugh said. ``About 70 percent of the comments are positive, 20 percent are requests or other such comments and 10 percent are good, systematic constructive comments.''
Kavanaugh often spends two to three days each week traveling to exchanges throughout the nation, scouting for problems, making sure services are satisfactory. ``I like to talk to the people that work and run our exchanges,'' he said. ``They are our best PR and are the closest thing Nexcom has to stockholders.''
For the future, Nexcom's installation of a new network of computers is half complete. This will enable the exchanges to order goods within hours of running low on a popular item rather than having to wait until the next season. Feedback will be swift, Jaudon said.
``We're just like a major retailer as far as structure goes,'' Kavanaugh said. ``We have the equivalent of CEOs, vice presidents and managers. I also have to answer to my bankers. We borrow between $100 to $120 million at a time. If I were in serious trouble, I'd have to lay off people, slow payments, just like anyone else.''
However, Nexcom, which reports to Bob Moore, head of Navy supply systems, has done well. Navy personnel and families reap the benefits. Each Navy Exchange contributes its net profit to the Navy's fund for morale, welfare and recreation activities.
These profits have upgraded and built swimming pools, playgrounds and other recreation facilities as well as reduced the price of movie tickets and other items desired by Navy families.
``Last year $75 million in dividends was returned to sailors and their families in the form of better services and recreational activities,'' Kavanaugh said. ILLUSTRATION: Color staff photos by Martin Smith-Rodden
Ron Trimner, an aviation electronics mate third class, and his wife,
Tammy, take their 2-month-old son Noah through the Navy Pride shop
at Oceana's exchange.
Vicki Sandridge of Virginia Beach helps her 2-year-old daughter
Kathryn choose a doll in the toy area of the Navy Exchange at Oceana
Naval Air Station.
Five-year-old Tammi Mercier of Virginia Beach waits for her mother
to come back with merchandise in a clothing section of Oceana's Navy
Exchange.
Color photo by Motoya Nakamura
Rear. Adm. John Kavanaugh, head of the U.S. Navy Exchange Service
Command.
[side bar]
THE U.S. NAVY EXCHANGE SERVICE COMMAND
Nexcom relocated to Virginia Beach in September 1993 and employs
about 600 in the area.
Nexcom earned $2.2 billion in sales in 1993 and returned $75
million in ``dividends'' spent on Navy facilities.
Nexcom's Navy Exchange system includes 135 exchange stores, 41
Navy Lodges and more than 250 ship's stores.
Navy Exchanges sell everything from soap and baby diapers to
electronics, computers and furniture.
Navy Exchanges average 1,300 square feet with revenues of $1
million a year.
Ten exchanges account for 80 percent of all exchange sales.
The Navy Exchanges rank second among armed services exchanges
after the Army/Air Force, which generates revenue of $7 billion a
year.
by CNB