How does your HME business compare to the industry norm when it comes to retail? To find out, check the following results of HomeCare's exclusive Retail Survey to determine the industry's retailing benchmarks. An accompanying analysis by HME retail expert Jack Evans of Global Media Marketing looks at progress the industry has made in retail since HomeCare last conducted this survey in 2001 (not much, Evans says) and the opportunities that exist (a lot of them, he points out) in what could be (if you approach it correctly) a very lucrative area.
A successful and profitable retail showroom for home medical equipment providers is not something that magically appears out of thin air. Rather, it is the result of careful store layout, a thorough understanding of customers' wants and needs, and aggressive salesmanship.
From the results of HomeCare's Retail Survey, it's clear that providers have a long way to go to optimize retail sales. But it's also clear that, with a little effort, providers can easily increase their cash business.
The Retail Showroom Profile
Seventy (70) percent of the providers responding to the survey have a retail showroom. Of these, one third are between 2,000 and 4,000 square feet, and another third are over 5,000 sq. ft. According to all HME providers surveyed, their square footage was utilized primarily for on-site storage (29 percent), offices (28 percent) and a retail showroom (27 percent). Six (6) percent have a pharmacy, and 4 percent of the footage is used for fitting rooms.
Is there any major difference between HME retail showrooms and retail stores in other industries? Yes — unfortunately! And the difference begins at the front entrance.
A total of 55 percent of respondents have a front window display (74 percent of those with retail showrooms). Now comes the golden question: How often do they change these window displays?
I have often compared the retailing savvy of home health care pharmacies to HMEs, noting that many of the latter still have the dust-covered artificial tree and wheelchair in their front window that they stuck there when they opened 20 years ago. According to respondents, 7 percent never change their showroom displays, 11 percent change yearly, 18 percent change every six months and 24 percent change quarterly. Only 19 percent change their displays monthly, and only 4 percent twice a month.
In retail, consumer-purchasing studies such as those from Paco Underhill of Envirosell, a company noted for its research into shopping behavior, have documented how people shop. Consumers walk from the front door to the aisle they need, pick up the product they want and walk to the cash register before exiting. They rarely vary their path to or from their desired purchase. The simple conclusion is that customers cannot buy related or impulse products if they will never see them.
For this reason, chain retailers such as drug stores, grocery stores and department stores change their end-caps and floor displays as often as possible (usually weekly). Physically bringing related products to the customer is the best way to increase sales-per-customer and meet a larger percentage of your customer's needs in any particular category. By rotating end-caps and floor displays with related products and training salespeople to educate customers about how these products meet similar needs or values, sales-per-customer can easily double or triple within the first few months.
Is Retailing Profitable?
The percentage of HME providers who allot showroom space based on product profitability has increased from one-third to one-half over the past three years. In retail, businesses use the “80/20” rule in delegating showroom space, knowing that 20 percent of their products generate 80 percent of their total sales. Also, retail-purchasing studies have shown that the front third of retail showrooms are the most profitable real estate.
The conclusion for achieving retail profitability is straightforward: In order for any particular retail business to be profitable, the top 20 percent of profitable products must be displayed in the front third of the showroom in order to generate 80 percent of sales.
Usually the only way to determine how profitable retail sales are in comparison to overall revenue is to track profitability by products and categories. The majority of respondents (57 percent) still track retail sales by total sales volume (and volume has no relation to profitability), while 52 percent use inventory turn rates (a good indicator of return on investment, or ROI) and only 42 percent use profit margin.
However, only 30 percent of respondents bother to track profitability by customers. Two-thirds still do not distinguish between walk-in retail and medical referral sales. When allocating financial resources, such as increasing advertising or hiring an additional outside salesperson, an HME provider needs to know which categories are growing and which are most profitable. Otherwise, too often their limited funds are spent on low-margin categories that do not generate a profitable ROI.
What Works in Retailing?
At least 58 percent of HME providers said they are planning to increase their over-the-counter (OTC) cash sales in 2004. Their responses help to explain how they plan on increasing these revenues, and which categories and products they expect to generate these sales.
The majority say they plan to utilize a combination of increased product selection and advertising to increase OTC sales. This is a winning combo, because retail businesses must achieve two goals when increasing sales and profits: 1) they must attract new customers into their businesses, and 2) they must increase overall sales-per-customer.
Advertising is by far the No. 1 means for increasing store traffic. Yet simply bringing more customers into a retail location does not automatically increase sales. Retailers must supply a complete product selection. According to recent statistics, 80 percent of consumers today make purchasing decisions once they are inside a particular retail business. Most providers in the survey specifically said that in order to increase their retail sales, they need to increase displays of OTC products that are not covered by Medicare.
Respondents also noted other ways to increase their OTC sales. These included additional marketing methods such as target marketing, direct mail, community health events, fliers, stuffers, and more product promotions. Display is also an issue, and many respondents noted they needed better product displays, expanded showrooms and newer displays in order to generate additional cash sales.
Why NOT Bother with Retail?
Of course, retail HME is still not widespread in our traditional marketplace of referral-driven providers. When respondents listed revenue sources, the top is Medicare (38 percent), followed by Medicaid (18 percent), and then an almost equal percentage (14 percent) comes from private insurers, managed care and cash sales.
What is so interesting about this survey is why many of the respondents do NOT plan to increase their OTC sales in 2004. Providers' most common response was that there was “no need” or “no interest.” These respondents explained that their primary business is still referral-driven. But the list of other reasons could easily sound like excuses: “not enough space,” “bad location,” “don't do retail,” “don't sell OTC,” “too time-consuming” or “no showroom.”
But it's exactly for these same reasons that independent and regional drug stores are becoming the success stories in retailing HME. Drug stores are in the retail business already and understand the value of any category that offers 40 percent profit margins, 8 to 12 turns per year and a loyal customer base for life. HME has become their new profit center, with average cash sales of $140 per customer in addition to any Medicare-covered or rental items.
Traditional HME businesses might want to reconsider their “reasons” for not working in the retail sector of HME while they still enjoy some market share.
The “A” List for Retail Sales
When asked which HME products currently make up the majority of their retail sales, providers said mobility is still the top category, comprised predominantly of wheelchairs, walkers/rollators and lift chairs. Respiratory is next with oxygen, CPAP and nebulizers.
They listed bath safety as another winner, including all of the standard bath safety products. Other top-selling products include compression stockings, orthopedic soft goods, beds and diabetes supplies.
When asked which products would offer the most potential for retail sales growth over the next year, the majority of respondents answered “respiratory,” with a focus on oxygen, CPAP and bi-level devices. Mobility also made their list, with providers specifying scooters and power wheelchairs. Other top categories were diabetic shoes, bath safety and orthopedic supports.
The future for retail HME sales is encouraging. The only criterion for success appears to be commitment. HME providers must be proactive and focus on retail OTC sales in order to be profitable in this category.
Incorporating a retail focus involves more than simple product selection. Retailing includes showroom space, changing displays, trained salespeople, a combination of marketing methods and ongoing advertising and promotion. Remember that retail is more than a cash sale to a walk-in customer. Retail is its own way of doing business.
Jack Evans, president of Global Media Marketing, Malibu, Calif., is an educator and marketing specialist in home health care. He works with HME providers and drug stores to develop retail layouts, merchandising, sales training, marketing and advertising programs. He can be reached at www.retailhomecare.com or by phone at 310/457-7333.
For the Record:
Printed questionnaires for HomeCare's Retail Survey were mailed on Sept. 26, 2003, and responses were accepted through Nov. 5, 2003. Survey methodology conforms to all accepted research method and procedures. Percentages are based on responses from 356 companies. Not all respondents answered every question, and some totals may add up to more than 100 percent due to multiple responses. For a complete copy of the survey, visit our Web site at www.homecaremag.com and click on the button that says “Purchase Exclusive HomeCare Research.”
Respondent Profile
Survey respondents were primarily HME providers (82 percent), with some combination pharmacy/HME businesses (12 percent) and specialty HME businesses (6 percent). Approximately half were independents with a single location, while one-quarter were independents with multiple locations, 11 percent were part of a national chain and 10 percent were hospital-based HME providers. The majority of participants are located in the Midwest and South, with the remainder split between being a national chain or located on the West or East Coast. As for revenue, about one-third reported sales of less than $1 million, one-third grossed between $1 million and $3 million, and the remaining third generated more than $3 million. Concerning location, 58 percent of respondents said their businesses are located in freestanding buildings, while 19 percent have space in a strip mall and 12 percent are situated in an industrial/office park. Only 5 percent are located in a medical office building, and 1 percent each in a hospital or enclosed shopping mall.
