Diary of a Retail HME Start-Up

As Medicare reimbursement has declined for the home oxygen and medical equipment industry every year since 2005, I had been looking for a strategy to diversify and keep my company, Allstar Oxygen Services, in the black. For over a year I collected articles on retail HME because it seemed to have some possibilities and I knew very little about it.

April, 2009 — I came home from Medtrade Spring and after hearing numerous presentations on retail HME, I was more convinced than ever that was the direction I needed to go — and soon.

One of the articles I had saved was by industry consultant Jack Evans with pictures of a store he designed that looked very attractive and different than any medical equipment store I had seen. So I contacted him and asked if he would help with my project. He began by sending me a lot of good information.

For starters, I decided I didn't want to combine my new retail business with my existing HME company's warehouse and delivery operation (Allstar Oxygen Service in Concord, Calif.). First, there was no space; and second, the location was excellent for a delivery business — between two freeways — but not that conducive to retail traffic. And after downsizing my customer service staff in late 2008 to deal with the 36-month oxygen cap and the 9.5 percent Medicare cut, I couldn't ask them to stretch any more into a new venture.

So I decided to create a new company and find a storefront location in a downtown retail area with 2,000 to 3,000 sq. ft. to start fresh.

May — I began writing a business plan. This prompted me to look closely at the local demographics (they appeared excellent), take a good look at the competition (only a couple of small, older, cluttered stores locally), consider all of the products I would carry (numerous items I knew nothing about) and develop a budget with three-year pro forma financials. I projected break-even at about month 13; Jack said it would be more likely around month 11.

I wanted to create an attractive store with an open floor plan, well lit, with a lot of product selection and great customer service. We would sell big items like motorized scooters, lift chairs and electric beds, but also rollators, compression stockings, orthopedic braces, bath safety items, a line of diabetic shoes and the usual retail array of medical products.

I considered walk-in tubs but opted for stairlifts instead. And I planned to add home modification services in conjunction with a local contractor down the road. To be competitive, I would have to be able to bill Medicare for the chair lift mechanisms and the rollators, but everything else would be cash.

June — After finishing the business plan, I went to the bank I had worked with for the 10 years since starting Allstar Oxygen to look for financing. It turns out after three mergers they were no longer the preferred SBA lender that helped me start the first business, but they referred me to another bank nearby. Without too much difficulty, I was able to get a $300,000 SBA loan for low costs (part of the economic stimulus plan) and a low interest rate, repayable over 10 years.

July — Now I needed to find a good location. In my mind, the top three factors in a successful retail business are location, location and location. Perhaps added to that for seniors are easy access and parking. Fortunately, with the economic downturn, there were quite a few empty storefronts available, and the rents appeared to be favorable.

After looking at numerous spaces, I zeroed in on one with a little more than 2,000 sq. ft. The location had decent parking on a main street across from a busy Trader Joe's grocery and only a half-block from a hospital. But after the owner handed me an 82-page lease, she appeared to be difficult. The last thing I needed in starting a new business was an uncooperative landlord, so I continued to look.

I finally settled on a 6,000-sq. ft. space (an out-of-business Blockbuster Video) that had just become available in nearby Walnut Creek — and that the landlord was willing to split in half for me. Access and parking were excellent, and visibility was good along a main street.