Retail by Definition
Due to the sluggish economy, we have decided to wait until next year to open our new retail showroom. But we want to know if you would instead help convert our current location into a retail HME.”
This is the second call I have received during the past month with this same request — and the second “No” I have been forced to give as an answer. I am not trying to be negative, but simply to help HME providers understand what really defines a retail business.
A Retail Location: Traditional insurance-driven HME businesses are usually warehouse operations that are located in industrial or commercial areas. The bulk of their Medicare/Medicaid business is conducted over the phone or electronically; the patient rarely comes into the office because the reimbursable products are usually delivered directly to the patient's home.
In contrast, a retail HME must be located in a highly visible area that has high daily traffic and is easily accessible. The prime locations are adjacent to or nearby a chain drugstore or grocery/pharmacy chains, because these chains have already researched traffic count, visibility and accessibility. And the majority of retail HME sales are impulse sales where the customer takes the product home with them.
The issue in retail concerning these different locations is not to create a separate destination. When a retail HME is located adjacent to or in close proximity to other retail businesses, the HME benefits from consumers who also visit their store while out shopping. The largest “crossover” from a retail business to an HME is from retail chain pharmacy, because 10 to 15 percent of these 350 to 500 script customers per day often need home health care products. (Independent pharmacies often also sell HME, so that is why chains are better referral sources.)
Due to the low cost of rent in commercial locations that are under $1/ft./mo. (or $12/ft./yr.), existing HME businesses are reluctant to move and increase their rental cost. However, when a retail HME is located by itself off in an industrial park, it must spend too much money on continuous advertising in order to draw customers to the inconvenient location. The cost of this advertising will often be higher than profit from the resulting sales.
Storeroom vs. Showroom: The traditional HME in a warehouse setting uses every square foot to warehouse inventory. The front-end of the business rarely looks any different than the back-end: The entire location is one large storeroom.
In retail, a business is paying a premium for the retail space (i.e., down from $4/ft./mo. to $2/ft./mo. in our current economy) and therefore uses the majority of the space for a retail showroom. This does not mean warehousing a dozen of the same units but instead featuring “good-better-best” products that offer customers differences in features, benefits and price points.
Instead of simply lining products in plain vanilla boxes on gondola shelving row after row, products are displayed put together on the showroom floor so people can see them and learn how to use them. The goal in retail is to keep people in your store longer and get them to touch, try, then buy the products. When retail HMEs create room settings and show products as they are intended to be used at home, customers can learn which products will best meet their health care needs.
Staff to Sell: In the traditional HME, the majority of staff is involved with reimbursement: intake, claims processing, accounts receivable, etc. These same people also answer the phones and double as customer service representatives.
However, in a retail business, the staff needs to know how to sell, which is a completely different skill set. They need to be salespeople who qualify prospects, offer solutions by demonstrating products and then convert those potential buyers into customers. Insurance is the last question asked of a customer, not the first.
If you are thinking about going into retail, take an objective look at your location, interior space and staff to see if you are prepared to make these transitions successfully.
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