State of The Industry, 2011.

Byline: Mark Hawver

State of The Industry, 2011

As we await the repercussions of a credit downgrade, a debt ceiling/budget cuts agreement that is neither Holy nor Roman nor an Empire, during a recession that is already a piece of gum stuck to the bottom of our shoe, how will the army/navy market fare in these unsettling times?

We may no longer be in a state of recovery from the Great Recession, and there are signs that we may backslide into recessionary times once again.

How army/navy retailers and suppliers may handle another dose of economic castor oil could seal the fate of businesses that are already under-capitalized and laden with debt. Those businesses that are financially viable and possess strong marketing skills will make it through.

Past no longer prologue?

Historically, army/navy stores have fared better than many small retail businesses during poor economic times. That was mostly due to the high dollar value, low cost nature of surplus items and a buying public that appreciated army/navy stores for their frugality, function and fashion.

It seems that during the most recent recession that army/navy stores were not able to take advantage of their stellar avalue for the bucka reputation to the same extent as in the past.

There are many reasons for that. For example, as John Ottaviano of Rothco noted, competition now abounds.

aArmy/navy stores during past recessions didnat have to compete with dollar stores and big box outlets that have become recognized for their low prices,a he said.

Furthermore, even military surplus goods are not as inexpensive as way back when, given the scarcer nature of the goods and the increase in distribution and acquisition costs since the end of the adirect from the DRMOa days and post 9/11.

In addition, the economic pressures on the typical army/navy store during the recent (current?) recession are different than what they were even ten years ago; real estate, energy, shipping, petroleum, insurance and other overhead factors are comparitively much higher now than in the past and consume a greater percentage of the cost of operating a business.

After a fashion?

The military look is still a fashion trendsetter, especially among a younger and more female demographic.

The attraction of the military/military style apparel to a segment of the population that spends more of its disposable income on apparel is absolutely an ongoing boon for the army/navy store; but only for retailers who invest in inventory, promotion and research that positions them to take advantage of it.

Army/navy retailers who were successful in drawing younger male and female customers into their stores by promoting military fashion found that the injection of young blood and an expansion of the female persuasion into their customer base helped build a strong foundation for future growth and viability. Many retailers have now learned how to monitor mass media, social media, magazines and the Internet to stay current on trends and products that they can use to expand their businesses. Perhaps just as importantly, these retailers are also learning that itas now a necessity to do so.

E-progress

The pace at which army/navy retailers are modernizing their marketing and promotion efforts is picking up considerably. Even five years ago, the industry as a whole was somewhat behind the times in terms of using email, the web, You Tube and social media to promote their businesses. For the most part, army/navy stores and suppliers have caught up with a vengeance.

The number of army/navy stores that actively promote using e-blasts, web sites (static or dynamic) has increased considerably, and most retailers are now cognizant of the fact that future success will be very much determined by how well they integrate their physical store business with a thriving Internet-based business.

The coordination between a physical store and an e-business is sometimes referred to as aclick & mortar.a We delve deeper into this subject on page 16 of this issue. And of course one can also read it on our web site, as we practice what we preach.

The search for surplus

In the aftermath of 9/11, the U.S. military decided to withdraw certain surplus items from commercial availability due to national security reasons. The government also outsourced the distribution of whatever goods were still deemed saleable to an Internet based auctioneer, Government Liquidation.com.

Ironically, the fact that the search for surplus became heavily Internet-based may have accelerated the pace at which the army/navy industry became tech-savvy.

As a result of these and other changes in the acquisition process, surplus became sur-minus; much harder to find quantitatively, qualitatively and in variety.

It seems like currently we have an industry of haves and have-nots, in terms of surplus inventory. Some suppliers and retailers have stockpiled surplus over the years and are living off of squirreled away surplus; others have connections to alternative sources of supply. But most stores report that they are hurting for product.

As Peter Leitner of P & A Surplus explained, aSelling surplus is easier than finding it.a

Less stores, more or less

While the number of retail stores that are still predominantly army/navy in focus continues to dwindle overall, there are still new stores that pop up here and there. But for every new store that opens, there are more that find that de-emphasizing the army/navy component of their business is necessary for their survival as a store.

New rules

The American armed forces have become very serious about enforcing their licensing programs. Suppliers must now pay a licensing fee, a per-product charge and must affix specific labels or tags to merchandise that depicts or highlights the name, typeface, logos or other symbols of a branch of military service.

This adds cost and complication to the manufacturing and marketing of products vital to the army/navy market.

The burden of added cost is also upon the industry in the form of still-high cotton prices, and many suppliers have been forced to raise their prices on apparel, in some cases substantially. The rising cost of gas and other energy products has also lead to increased prices that have impacted suppliers, retailers and consumers alike.

Tactical strategical

Most observers believe that the most reliable and complementary area of growth for army/navy stores is the law enforcement/tactical category. As Danny Fox of Fox Outdoors noted, aThe military business is not as viable as it once was, and tactical has for us and for most of our retailers been the best avenue of growth.a

The growing importance of the annual SHOT Show to army/navy retailers and suppliers is evidence of the light at the end of the tunnel that the law enforcement/tactical market can be for army/navy retailers and their suppliers.

2011 Cygnus Business Media