DATE: Thursday, March 27, 1997              TAG: 9703260464

SECTION: LOCAL                   PAGE: B3   EDITION: FINAL 

TYPE: Military 

SOURCE: Dale Eisman 

                                            LENGTH:   69 lines

EXCHANGE SYSTEM LATEST BATTLEFIELD FOR MILITARY

WASHINGTON - Asked to choose sides in a battle between underpaid military families and retail giants like Circuit City and Sears, most of us wouldn't have much trouble favoring the folks in uniform.

But what if the contest were between the economic vitality of locally owned, family businesses like Haynes and Willis Wayside Furniture and a tax-exempt chain of department stores like those run by the Navy Exchange Command?

Congress must take sides later this spring in a battle that is all of the above, deciding whether the Pentagon can lift longstanding restrictions on what can be sold at military exchanges.

The services want permission to add now-banned items like big-screen televisions, most microwave ovens, wall-to-wall carpeting and upscale furniture to their offerings. The change would give military families a substantial price break on such items; goods sell for an average of 18 percent less in military stores than at civilian outlets.

Exchange purchases also are exempt from state sales taxes, 4.5 percent in Virginia.

``Our vision is to be our customers' first choice,'' Air Force Maj. Gen. Allen D. Bunger, head of the Army and Air Force exchanges, told a panel of the House National Security Committee during a hearing on exchange operations.

``So it concerns me greatly whenever a soldier or airman asks me why they can't buy a big-screen television in their store, or why they have to go off base for real furniture. I have no answer.''

Military leaders see the exchanges and low-price grocery stores run by the Defense Commissary Agency, as a major aid in their efforts to keep young, family-minded troops in uniform.

A military pay increase equal in value to the exchanges' price breaks would cost taxpayers almost $2 billion annually, said Robert Gaskin, a vice president of the American Logistics Association, a trade group for manufacturers that sell through the exchanges.

The sales restrictions date to congressional action in 1949 to protect retailers - then mostly small, family-owned businesses - in military towns from what was seen as unfair, subsidized competition.

Today's marketplace is far different, Assistant Secretary of Defense Frederick Pang noted in a letter to the House committee last year. Most of the small retailers have been replaced by big, national chains like Wal-Mart, Kmart, and Montgomery Ward that hardly need protection from the exchanges.

Gaskin argues that removing all the sales restrictions would add only 1 percent to the annual revenues of exchanges.

``That's one-tenth of one percent of Wal-Mart's annual sales,'' Gaskin said.

``The issue isn't that merchants outside the gate don't get money (from military families),'' he added. ``They do. They just want it all.''

Still, the big retailers are lobbying to keep the exchanges off their turf and are getting support from the few small retailers, like Haynes and Willis Wayside, that remain.

While the overall effect of lifting the restrictions might be negligible, individual stores in communities such as Hampton Roads would be pinched if they had to compete with the exchanges for big-ticket sales, supporters of the limits argue.

Rep. Owen B. Pickett, whose Norfolk-Virginia Beach district includes perhaps the nation's highest concentration of military families, confirmed that he's hearing plenty from both sides. He's prepared to support lifting the ban on at least some exchange sales, particularly those of foreign-made goods now widely available off base thanks to lowered trade barriers.

But, he conceded, ``I don't know where we're going to come down'' on other restrictions. KEYWORDS: MILITARY EXCHANGES STORE COMPETITION

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