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
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.
December — A few days before I signed the
lease, I got a call from the Yellow Pages informing me that the
deadline was approaching for display ads. Realizing this would be a
major part of my advertising, I needed to get an ad in the phone
book now or wait for another year. I hired a graphic designer to
create an ad, and we made the deadline. Knowing that I couldn't
turn back, I woke up a few nights in a sweat wondering what I had
gotten myself into, but I kept going. I sent the floor plans
outlining the new space to Jack, and he came back with a design
designating where each product category would go. Now the business
was beginning to become a reality. Here was the layout in my hand
with all of the products I would carry. I hired an architect to do
drawings to submit to the city. Once we had formal plans, I moved
forward getting bids and hired a contractor and an interior
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