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Canned goods and other dry stores are a regular storage item in commercial merchandise warehouses. A number of medical supplies such as vaccines and other drugs are also being increasingly stored in private refrigerated warehouses.
Mr. Fountain wanted to know what items should the Government store in private warehouses.
These would be items which are normally stored in private warehouses by commercial customers and which are also used by the military and other Government agencies. Such items include household equipment, foodstuffs, spare parts, rope, wire, soap, powder, paint, office equipment and supplies, tires, batteries, cables, clothing, tools, and hundreds of similar items. One Department of Defense official tells us that 80 percent of what the military stores could be stored in privately operated warehouses without involving classified material.
Again we wish to thank you for the opportunity to be heard. If there is any additional information the committee would like to have, we will be glad to get it for you. Sincerely yours,
WILLIAM DALTON Mr. OSMERS. Who is the next witness? Mr. Ray WARD. Mr. Ward of the American Retail Federation.
STATEMENT OF QUAIFE M. WARD, ASSISTANT TO THE PRESIDENT
OF THE AMERICAN RETAIL FEDERATION
Mr. WARD. Mr. Chairman, I filed a statement with you. I would like to have the statement put in the record and, if I may, I would like to take about 5 minutes for oral comments.
Mr. OsmERS. That will be very satisfactory to us, Mr. Ward.
STATEMENT OF QUAIFE M. WARD, ASSISTANT TO THE PRESIDENT OF THE AMERICAN
At the conclusion of an investigation of domestic Armed Forces exchanges and commissaries by the House Committee on Armed Services in 1949 the committee stated officially that it had “come to the conclusion that the Armed Forces are actively competing with established private business. In accordance with current regulations, a very wide range of merchandise is being sold through post exchanges and ships' service stores and most of it duplicates merchandise being sold by retail businessmen within the same general area of the service activities. Due to the fact that post exchanges and ships' service stores are not subject to State taxes, have not imposed a Federal retailer's excise tax on appropriate items, have no rent to pay, pay only a portion of the upkeep of the premises, pay only a portion of the utilities and pay no salaries of the military personnel employed in the activities, it is inevitable that these stores can sell merchandise at a much lower price than merchants in the same vicinity. We deem this to be unfair competition.”
Twenty-five retailers appeared before that committee and told of the impact of exchange competition upon their business. Many of these individuals later were subjected to severe retaliation, even boycotts, from local Armed Forces personnelmany suffered substantial losses in business because they had dared to speak out against the practices of exchanges.
Late in 1949, an agreement was reached between the Armed Services Committee and the Department of Defense whereby; (1) the Federal retail excise tax would be collected by exchanges; (2) the special order system for purchasing unstocked merchandise would be terminated; (3) the list of approved items for resale in exchanges would be curtailed and price limits established; and (4) steps would be taken to insure that unauthorized individuals would not be allowed to purchase in exchanges or commissaries.
DISREGARD OF AGREEMENT ON RESALE ACTIVITIES
Soon after the outbreak of the Korean war there was a recurrence of complaints of unfair competition on the part of Armed Forces exchanges and commissaries.
When these complaints were called informally to the attention of the House Armed Services Committee, we were informed by the staff that such information would have to be documented with names, prices, places, and description of the merchandise. Accordingly, in November and December 1952 retail organizations sponsored a survey of 14 Army, Navy, Air Force and Marine exchanges in Illinois, Ohio, Virginia, and the District of Columbia. This sampling survey was undertaken by a professional marketing research agency.
The result of the survey indicated that unauthorized civilians could easily purchase merchandise in any exchange and that a system of referrals was widely employed whereby merchandise not available in the exchange, such as electrical appliances and other luxury merchandise, could be purchased at a discount at favored establishments off the military installation. The survey also showed that the authorized list of resale items was being ignored by some exchanges.
On March 27, 1953, the report of this survey was submitted to the chairman of the House Armed Services Committee. Subsequently, the survey was referred to a Subcommittee on Defense Activities the chairman of which was Representative William E. Hess (Republican, Ohio). The subcommittee issued a report on August 12, 1953, which amounted to a complete "whitewash" and stated that "exchanges are being properly run in the best interests, not only of the service man and woman, but of the public as a whole.” This report attacked the American Retail Federation in very intemperate terms and referred to merchants as "unscrupulous characters" who frequently preyed upon service personnel and “mulcted" then of their "small pay.' The federation answered these baseless accusations as follows:
1. Retailing has always objected, and will continue to object, to the type of Government competition with private industry represented by Armed Forces exchanges as they are presently operated.
2. Retailing responded to the Philbin subcommittee's admonishment to observe and report violations of the 1949 agreement. This fact evidently. was overlooked in the Hess subcommittee report.
3. The report of our survey of 14 exchanges speaks for itself.
4. Even the “more vocal critics” among retailers have never advocated the closing of exchanges.
5. To say that the list of resale items proposed by retailers would destroy exchanges is ridiculous—the proposed list merely eliminates luxury and semiluxury merchandise.
6. No one can seriously maintain that "many" merchants are “unscrupulous character” who mulct the serviceman of "his small pay.”
7. Retailing questions the premise that the service man and woman should not be expected to pay the same price as civilians.
8. The operation of exchanges should be made to conform to the original dictates of the Congress to supply service men and women with "items of small personal needs” and “items of convenience and necessity.”
9. There was absolutely no evidence and no showing by the Hess subcommittee that retailing's investigators committed any unlawful act.
EXTENSIVE PUBLICITY GIVEN HESS REPORT
The Hess subcommittee report received wide publicity through official and unofficial military sources. While the ARF survey and the congressional investigations had the effect of at least temporarily tightening up exchange operations, the Department of Defense has taken the subcommittee report as a clean bill-ofhealth and encouragement to expand the activities of exchanges.
The most recent published article in this connection to come to our attention appears on page 20 of the July 1954 issue of Reader's Digest. This article contains the typical distortions of facts about PX's and commissary store operations and retailing's attitude on the subject.
A further endorsement of exchange operations was issued by Secretary of the Air Force Harold E. Talbott at a press conference on September 28, 1953, when he stated that “a fellow should be able to buy anything he wants through the post exchange.'
Secretary Talbott also stated that the Department of Defense had in mind submitting legislation to the Congress which would be designed to provide Armed Forces personnel with a "bill of rights” covering fringe benefits such as PX's, commissary stores, medical attention for dependents, clubs, swimming pools, etc. Such a "bill or rights,” however, has not been proposed, insofar as we know.
ORIGIN OF MILITARY EXCHANGES
The history of PX's dates from 1895 when the Secretary of War issued this directive:
“The post exchange will combine the features of reading and recreation rooms, & cooperative store, and a restaurant. Its primary purpose is to supply the troops, at reasonable prices, with the articles of ordinary use, wear, and consumption, not supplied by the Government, and to afford them means of rational recreation and amusement.”
In subsequent legislation the Congress authorized exchanges to stock and sell "small items of convenience and necessity” or “items for the comfort and contentment” for Armed Forces personnel.
As the Armed Services Committee discovered in 1949, exchanges have deviated substantially from these original standards. Some improvements, somewhat temporary in nature, were achieved in 1949. Now we have proof that the 1949 agreement is being widely disregarded.
Retailers understand and appreciate that some sales and restaurant facilities on Armed Forces installations provide an important morale factor— that profits from exchange sales are used for a worthy cause, i. e., to provide recreation and amusement facilities not provided for from appropriated funds; but these sales outlets need not be and should not be department stores, offering shopping merchandise in a wide range of choices and prices.
Retailers would have no quarrel with the Department of Defense if the ArmyAir Force Exchange Service and its Navy and Marine counterparts, observed the reasonable standards established by the Congress for the operation of domestic exchanges to supply Armed Forces personnel "items of convenience and necessity”. These terms, in our opinion, however, cannot reasonably be construed to include the glittering array of merchandise now displayed in exchanges across this country.
Most of the sales stores are tastefully decorated and efficiently equipped with the latest type display cases and generally provide a comfortable shopping atmosphere comparable to a modern downtown department store. If you were to visit the exchange at Bolling Air Force Base here in Washington, you would find a large, completely departmentalized retail operation with choice stocks of standard brand merchandise at prices averaging up to 25 percent below prices in downtown stores. You would find a barber shop, a beauty shop, a laundry and dry-cleaning shop, a watch repair shop, vending machines, and a shoe repair shop. There are at least a half dozen similar exchange operations in the District
All of these Government-sponsored sales outlets are located within minutes of easily accessible and completely adequate commercial shopping facilities. There is no conceivable hardship for Armed Forces personnel and their dependents to shop in and around Washington. Neither the District government nor the State of Maryland receives any sales tax revenue from sales in these exchanges.
In 1948 there were 374 Army, Air Force, Navy, and Marine Corps exchanges in the continental limits of the United States; these exchanges emploved 17,468 civilians and 1,193 uniformed personnel. We are unaware of the numbers today, but we are confident that the figures are substantially greater. We do know that Army and Air Force exchanges sales in 1953 amounted to $367,288,383. Navy exchange sales in that year amounted to $124,426,900. Sales in Marine exchanges are estimated at $30,400,000. Thus a total of $522 million in exchange sales occurred in 1953. Any such sales volume figures need to be adjusted to customary retail levels in order to reflect the true picture of the extent of exchange competition to private business.
The net profit on $367,288,383 of Army-Air rce exchange sales in 1953 was $29,540,502—or slightly more than 8 percent. When this net profit figure is applied to $522 million the result is $41,760,000 for the year 1953—not an insignificant amount.
It has become a common practice for exchanges to seek ever-increasing volume of sales by means of newspaper advertisements, special sales, displays, and all the other types of sales promotions ordinarily used by commercially operated department stores. A part of this aggressiveness stems from the fact that civilian exchange managers often have been schooled in some of our more successful retail establishments and their salaries are determined by achievement of certain volume of sales, Such incentive employment contracts in exchange operations cannot be justified. Rather a great many of our difficulties are occasioned by
individuals who may be tempted to disregard both the letter and the spirit of the regulations in order to obtain volume.
This type of competition not only is unfair to private enterprise but it denies State and local governments of substantial revenues in sales taxes, and property taxes. We know of no instance where exchanges collect these taxes on Armed Forces installations. The loss of corporate income taxes to Federal and State governments must also be substantial upon ach a large volume of annual sales. Losses in other types of taxes, rents, and insurance can only be imagined.
Exchanges, as they are now operated, create in the minds of consumers, generally, who come in contact with these prices, a distrust of the integrity of retailers as price makers because the layman can't understand that these military stores are operated with few, if any, of the overhead costs of doing business which the retailer must add to his cost before he reaches the break-even point, let alone show a profit.
There are extensive exchange facilities operated overseas and rightly so. No one would object to making available any needed commodity to personnel serving out of the country. Our concern is entirely with the domestic picture.
THE RELATED PROBLEM OF COMMISSARY STORE COMPETITION
The commissary store problem is closely allied with the PX problem. The two problems were investigated simultaneously in 1949 by the Philbin subcommittee. The recommendations of the subcommittee in some respects were identical; in others the subcommittee went further and urged the closing of commissary stores where adequate commercial facilities were available at reasonable distances from military installations and where food was offered at competitive prices.
Disregard of these criteria by the Department of Defense prompted more drastic action in 1953 when the Appropriations Act forbade the use of Federal funds after December 31, 1953, to operate commissary stores in areas where, on the basis of criteria determined by the Department of Defense, it was found that the operation of commissary stores are not justified. The Congress again within the past few weeks, has approved this policy and extended the 1953 restrictions upon commissary store operations as follows:
“Sec. 717. No appropriation contained in this act shall be available in connection with the operation of commissary stores of the agencies of the Department of Defense for the cost of purchase (including commercial transportation in the United States to the place of sale but excluding all transportation outside the United States) and maintenance of operating equipment and supplies, and for the actual or estimated cost of utilities as may be furnished by the Government and of shrinkage, spoilage, and pilferage of merchandise under the control of such commissary stores, except as authorized under regulations promulgated by the Secretaries of the military departments concerned, with the approval of the Secretary of Defense, which regulations shall provide for reimbursement therefor to the appropriations concerned and, notwithstanding any other provision of law, shall provide for the adjustment of the sales prices in such commissary stores to the extent necessary to furnish sufficient gross revenue from sales of commissary stores to make such reimbursement: Provided, That under such regulations as may be issued pursuant to this section all utilities may be furnished without cost to the commissary stores outside the continental United States and in Alaska: Provided further, That no appropriation contained in this act shall be available in connection with the operation of commissary stores within the continental United States unless the Secretary of Defense has certified that items normally procured from commissary stores are not otherwise available at a reasonable distance and a reasonable price in satisfactory quality and quantity to the military and civilian employees of the Department of Defense." (Public Law 458—Department of Defense Appropriations Act, 1955, approved June 30, 1954.)
Several organizations have launched propaganda drives to try to block the closing of any commissary store. These organizations include the Gold Star Wives of America, Inc., the Gold Star Sons and Daughters, Navy Wives Clubs, and the Fighting Homefolds of Fighting Men. The elimination of commissary stores, they complain, would be tantamount to a reduction of 15 percent in servicemen's pay. Circulars have been distributed urging service wives to write Congressmen and other public officials to protest the proposed elimination of commissary stores or the curtailment of PX privileges.
This effort evidently has not been ineffective. According to a report issued by the Secretary of Defense on December 10, 1953, only 6 commissary stores out of a total of 216 have been closed. Three of these stores were closed because the stations were reduced in size; the reason for closing the other three was not revealed.
The DOD report stated that 38 other commissary stores in metropolitan areas would remain under continued surveillance. Insofar as we know none of these has been closed. We understand that some new commissary storeş have been opened within the past year.
The ARF believes that the principle enunciated in H. R. 8832, H. R. 9834, and H. R. 9835 would, if enacted, go a long way toward assuring business that the unfair competition arising from the operation of commissary stores in metropolitan areas and the expansive selling of luxury and semiluxury merchandise in military exchanges would be eliminated.
Mr. WARD. Thank you.
Mr. OSMERS. Sometimes you get tangled up when you give these extemporaneous remarks, but go ahead.
Mr. WARD. My name is Quaife Ward. I am assistant to the president of the American Retail Federation, an organization with offices at 1625 I Street NW., Washington, D. C.
The American Retail Federation is a federation of 24 national retail trade associations and 34 statewide associations of retailers, representing in all more than 600,000 retail outlets.
You have in your hands a detailed statement which bears witness to our longstanding policy in opposition to Government competition with private businesses and particularly our long struggle to confine military post exchange and commissary stores to their original and proper scope of operations.
This committee is interested in accurate facts and statistics which would substantiate our contentions. Unfortunately, such data in this area is exceedingly difficult to come by. There is a decided reluctance on the part of the Department of Defense to reveal adequate or complete information.
We sincerely wish we could tell this committee at the present time how much in the way of taxes the Federal, State, and local governments are losing because of questionable post exchange and commissary operations.
Other current pertinent facts are unavailable, such as the number of Government employees and the total value of Government investment involved.
Perhaps the Department of Defense would be willing to provide this committee with these facts upon request. We believe that such a disclosure would be extremely revealing.
We do have available figures from the work of the Philbin subcommittee of the House Armed Services Committee in 1949, which shed some light on this problem.
In 1948 there were 374 Army, Air Force, Navy, and Marine Corps exchanges in the continental limits of the United States. These exchanges employed 17,468 civilians and 1,193 uniformed personnel. We are unaware of the numbers today, but we are confident that the figures are substantially greater.
We do know that Army and Air Force exchange sales in 1953 amounted to $367,288,383. Navy exchange sales in that year amounted to $124,426,900. Sales in the Marine exchanges are estimated at over $30 million. Thus, a total of $522 million in exchange sales occurred in 1953.
In 1952, according to a Government Accounting Office survey, as reported to the Harden Subcommittee on Intergovernmental Relations, commissary sales totaled $174,393,000. Assuming that 1953 commissary sales were maintained at the 1952 level, we arrive at the