What 'guru-level' lessons have some cash sales veterans learned on their pathway to retail enlightenment?
- By David Kopf
- Feb 01, 2014
For several years, this publication and many sources of information and education across the HME industry have been telling providers that retail sales must be a key component of their revenue streams. And lately, they’ve been listening.
To review the basic argument for retail: Medicare funding has become far too volatile, and its margins have grown far too narrow to rely on CMS reimbursement for the age-old 80 percent of revenue that it once comprised. Providers must find stable forms of revenue that can ensure a baseline level of cash-flow, and cash sales represents a surefire way to do that. The key is that providers must be willing to learn many new lessons, as retails sales also represents a significant departure from traditional DME.
To that end, HMEB’s efforts have included articles, interviews, columns, how-to pieces and online webinars on multiple fundamental aspects of conducting cash sales, such as sales training, marketing, merchandising, back office implementation, signage and store location, to name a few. And, lately, providers have been responding to that steady drumbeat of cash sales information. The level of interest and conversation nearly a year ago at Medtrade Spring 2013 was considerable. Cash sales have indeed gained serious momentum within the industry.
But after seven years of covering some of the more fundamental lessons, we wanted to see what the industry’s cash sales veterans had learned now that they had been engaged in retail business for a solid stretch of time. Lessons such as merchandising, planning floor space, and proper signage are critical to cash sales success, but we wanted to talk to some providers that have taken cash sales to the next level in order to find out what are some of the sort of key “guru-level” lessons that they’ve learned.
So, we talked with three providers that are representative of your typical HME business in terms of size, scope and specialty, but that got on board with retail sales and gained some insights that will help you shape your cash strategies, and some that also might surprise you. The pathway to retail enlightenment is not necessarily a straight one, and some interesting discoveries lie around blind corners. Here’s a chance to see what the journey has in store:
Jim Greatorex, President of Black Bear Medical, has been in the HME industry since 1981 and his business has been going for 25 years. He says retail has been part of his career since he began.
“I’ve always worked for a company with retail division” Greatorex says. “… We’ve developed a retail division that does a fairly robust business.” Currently, Black Bear Medical’s has two office, one in Portland, Maine and the other in Bangor, and its revenue is based on 46 percent complex rehab, 30 percent revenue and supplies comprise the rest.
Moreover, Greatorex is so committed to spreading the retail gospel that he sits on Medtrade’s education advisory panel, and his primary responsibility in that role is to develop retail education. Simply put, he has learned lessons he wants to see other providers learn.
“We share what we’ve learned to try and help others who are just getting into it,” he explains.
The initial draw for retail sales was obvious for Black Bear, Greatorex explains, because it meshed so well with much of what his business offers, and because it offered stable income.
“I think it’s a natural mix if you’re working in the complex rehab market, because a lot of those clients are buying other products,” he says. “But the other thing is that, even back in the day when Medicare margins were better, I have never liked the federal government as a business partner.
“There are too many strings attached to your revenue, and the strings are getting thicker and longer now,” he continues. “I can’t believe that anybody is looking to expand their Medicare revenue at this time.”
Plus there’s a certain level of excitement and satisfaction with marketing, merchandising and the other aspects of conducting a retail business.
“We’ve always liked the ability to control what you sell, what you sell it for, and who you sell it to,” Greatorex says. “And quite frankly, at the end of the day, it is way more fun.”
And in shaping his retail business to ensure success, Greatorex says he’s focused considerable emphasis and activity around key cash activities, such as marketing and merchandising. But the pivotal revelation he’s learned in his retail experience might surprise his professional peers:
“There is no model to follow,” he says. “The retail arena is evolving, and we can make it whatever we want it to be. It’s a true entrepreneurial opportunity.”
That’s a thought that is either terrifying or liberating, depending on your point of view. If you’re focused on traditional HME business practices, markets served, and partner relationships, a blank slate can put you on edge, but for providers that are willing to shift and perhaps reinvent what it is they do, the retail world might look like their proverbial oyster. The possibilities are seemingly endless; an enterprising provider can create a whole new business unit that leverages its existing expertise and relationships.
“We just brought in products for a younger demographic,” Greatorex says. “We got to a point where our Senior Safe at Home division kind of plateaued.
“Well, if you saw the last Summer Olympics, you will have noticed various athletes wearing various tapes and compression sleeves in order to enhance their performance,” he continues. “Those are made by the manufacturers that we already deal with, and a lot of the elements of clinical compression are things we already know, so why can’t we sell that product to the athletes? We can fit the athletes and help them understand what they’re getting from a clinical benefit.”
And that’s just one example, Greatorex explains. “There are a lot of products that require a level of expertise, and that you don’t have to worry about the mass marketers and big box stores carrying — and that we can do, and take the principles that HME is already good at: Whatever we sell, we teach people who to use it and have a relationship with them.”
In reaching out to these new, “blank slate” market opportunities, Greatorex says that marketing and branding are critical. So much so that he’s brought in some expert help. So it brought in a branding company to help it determine who it could serve a wide spectrum of clients that would range from seniors, runners, cyclists and complex rehab users.
“How can you create an experience so that all those consumers at once can feel like they’re in the right place,” he explains. “So we brought a branding company in to create a store that perhaps can have that. “But it is something that we are creating ourselves,” Greatorex reaffirms. “We have no model to follow. The products that we pick, some of them are experimental … but they’re a little ‘nichey’ and require a level of expertise.”
And therein lies the kernel of the HME retail challenge and opportunity: how do you select a product that will cater to patients and leverage the provider’s expertise, market it to the general public, and compel them to want or need it.
“I can’t say that we’ve perfect that, yet,” Greatorex says. “But that’s what we’re working on every day.”
Griffin Home Health Care, which just celebrated its 30th anniversary, serves homecare clients in a roughly 15-county radius out of its two Charlotte, N.C.-area offices with traditional DME offerings, such as oxygen and beds, and those two locations have retail showrooms, as well.
Griffin started the business in the corner of a retail drug store, and its headquarters shifted in 1989 to a 10,000-square foot facility with showroom, offices and warehouse. Retail has been a part of the scenario since day one, says Griffin’s president and CEO Bill Griffin. Cash register receipts are in his blood.
“Retail was my background,” he explains. “I went to work in the retail environment when I was 15-years-old. I was promoted to be the assistant manager of a large, regional drugstore chain at the age of 17. Then I served as the director of merchandising for a drug chain in New York state, and then came back to North Carolina as the merchandising manager for about 70 drugstores. So I’ve always had the focus in my life on merchandising.
“We believe in the whole consumer experience,” Griffin adds. “It’s not just about the hospital bed, and when they have a hospital bed, they need sheets, they need other items.”
And retail doesn’t end at the showroom floor.
“From the standpoint of our retail clients, we serve that population all over the world,” he says. “We’ve shipped things to Africa, we have shipped things all over the country … whatever works, works.”
Ultimately, the key lesson Griffin has learned in all his years of retail sales in the DME marketplace is that there is a business. The point is simple, but it’s also almost transcendental: In a traditionally Medicarefocal business, that’s often a mental roadblock for some providers.
As proof of that psychological barrier, Griffin recalled a trip to Florida in which he visited different HME providers and drew blanks stares after inquiring if he cold buy or rent a piece of DME. They couldn’t wrap their heads around the concept of non-funded transactions.
“People want to spend money,” he says, emphasizing the point: “They want to spend money. People want what they want, and they are willing to pay for it.
“And we’re going to see even more of that with the onset of the Affordable Care Act,” he adds. “Because insurance is not going to pay for everything anymore.”
The fundamentals of cash sales are important, but that cerebral re-boot is pivotal, Griffin stresses. Providers must recognize that the cash register will be king for many patients. Only then can providers start to leverage what they know and the resources they have in place.
“Service and knowledge, and the overall retail experience are key,” he says. “But I think we need to realize that this is a touch feely business; it’s a hands-on experience; and if you provide that service level and you provide people with what they want, there’s no question that you will be successful.”
Now, while we know where a provider’s mindset needs to be, what about the patients and clients they serve. Is this increased financial responsibility under Obamacare equate to them making decisions under duress, or are they taking more control of their health? That obviously impacts the sale.
“I think the educated consumer that understands healthcare and understands the system gets quite disgusted in the fact that Medicare doesn’t cover certain basic items,” Griffin says. “A grand example is that Medicare stops at the bathroom door. Where are 90 percent of all accidents in the home? They’re in the bathroom. So why does Medicare stop at the bathroom door? Why don’t they cover a bath chair or a bath bench?
“So the educated consumer gets frustrated,” he continues. “But I think we have to educate them and tell them, ‘We’re sorry, Medicare will pay for the basic item.’”
So it doesn’t necessarily make the retail sale more difficult, and if anything provides the HME business with the opportunity to educate the consumer, give them choices, and help them make an informed decision. Medicare might be stingy, but at least with information provided by the helpful HME provider, the patient can feel like they’re in the driver’s seat when it comes to their healthcare.
And when patients might want a more expensive DME item on a retail basis? This is where the retail fundamentals come into play, especially at the actual location. Griffin explains.
“Firstly, location, location, location,” he says. “Secondly, merchandising is key. If you walk into most durable medical equipment companies, they’re generally extremely cluttered. They’re generally not a welcoming type of place for the normal consumer.
“Traffic flow and patterns in the retail facility are very important,” he continues. “… You put your high impulse buy items in the high-traffic aisles. We use our end caps to an advantage; we change them. Signs will literally act as a silent salesperson. Products must be clearly priced so that the consumer can self-shop. Personal must be dedicated to the retail client. You have to be willing to commit to retail. You have to be willing to commit staff and training to the retail environment.”
The need to integrate cash sales came quickly in the history of Shan Medical Equipment, a full-line DME provider with three locations that’s been serving a diverse range of patients in the Sterling Heights, Mich. area just outside of Detroit since 1996, according to its CEO Ali Al-Khafaji.
“When we first started, we were a majority Medicare business,” he says. “But after a couple years, we knew we wouldn’t never live that way. So we started to apply for every insurance carrier out there. We didn’t care whether it was an HMO or a PPO. We want to take everything.
“We knew that we couldn’t rely on one payor,” Al-Khafaji explains, adding that growing up in a manufacturing town like Detroit, his father would remind him that relying on a sole client or supplier makes for bad business. Diversification is key in survival. “His perspective is accept everyone.”
After opening its Sterling Heights location during 1998-1999, which had more of a showroom, Al-Khafaji says the environment was prefect for retail sales.
“We knew we’d be able to drive more cash sales if we could better show the product,” he recalls. “It’s been a lot of trial and error. It wasn’t easy back then to convince someone to pay cash for something when they felt that Medicare card was the golden ticket.”
Since that early commitment, retail sales has become and increasingly important part of Shan Medical’s revenues, and Al-Khafaji says he expects it to grow.
“We feel that retail is going to grow with the increasing cuts in insurance,” he says. “When you have a patient with a $2,000-$3,000 deductible, he’s better off to go retail. There’s no point in touching your insurance at that point.”
And the showroom isn’t the only key to Al-Khafaji’s retail plan. Online sales are also increasingly critical, he says. It’s the only way he can combat the situation. For example, Medicare wants prices to drop on DME, but it doesn’t let providers also sell reimbursed items for less on a retail basis. So providers must sell similar items from other manufacturers for which they’re not being reimbursed.
“If they let us do things how it is in the free world — set our prices how we want to — it’d be a whole different world out here,” he says.
For providers looking to enter retail, but that are new, Al-Khafaji advises to start small. Rome wasn’t build in a day.
“Start slow,” he advises. “Start with a couple products and build your way. You don’t have to start with a full line and think it’s going to start working tomorrow. That’s not how it works. People have to learn you, and become familiar with you and come into your store. They start to learn that you’re there and then come buy from you.”
And whether working in the online world, or the brick-and-mortar location, Al-Khafaji says one of the most important lessons he’s learned is that providers must be flexible, to an almost incredible degree. And it’s not just Medicare policy or healthcare trends that are forcing that need for flexibility, but must larger retail and consumer trends.
“One model doesn’t last,” he advises. “You have to constantly change. I’ve been to some lectures where you hear people say, ‘do this,’ or ‘do that,’ but I don’t think any of that lasts.
“Especially with online,” he adds. “Now mobile online purchases have increased, I think that for Black Friday they increased over 39 percent. So it’s becoming a bigger animal, and if you don’t constantly change with that animal, you’re just going to get swallowed up.”
If anything, if there was one group of businesses that have demonstrated that they are willing to roll with the punches and redefine themselves it would be DME providers. Looking at all the tumult that HME businesses have endured over the past decade, and yet they remain standing, perhaps these are the businesses that can exemplify that kind of malleability and adaptability.
This article originally appeared in the February 2014 issue of HME Business.