Observation Deck

Creating a Retail State of Mind

A retail provider explains how HMEs need to rethink their cash businesses.

• By Wayne Slavitt
• May 01, 2017

When competitive bidding first went into effect in 2013, many HME retailers believed the draconian changes forced upon them would be reversed or at least substantially modified. After all, how could they sustain an average of a 46 percent reduction in reimbursement rates? The industry has pushed for competitive bidding relief, and yet, most of the initial changes implemented with competitive bidding remain in effect today.

In the meantime, competitive bidding fostered the growth of HME retail sales. Specifically, the bid program created two types of retailers. The first type won contracts under competitive bidding. However, as the new reality of much lower margins took shape, “We’ll make it up in volume” became the goal for these retailers — which was rarely achieved. The second type of retailer lost contracts with Medicare and saw large swaths of their revenue dissipate overnight. A new reality that required them to adapt or die. And yet, why have so few retailers made the changes necessary to survive in a non-Medicare world?

A Non-Retail Environment

Up until 2013, HME retailers who accepted insurance (which was mostly all of them) never felt a real need to offer a retail friendly environment to their customers. After all, their real customer was not the senior who received a wheelchair, but instead the payer, such as Medicare. Product choice was decided by the payer, relieving the retailer from having to worry much about merchandising. In fact, most Medicare-dependent HME retailers never had to worry about much related to running a true retail business.

Let’s take a look at the average HME retailer that I have observed. Let’s explore the following aspects of their businesses:

• Location
With Medicare as your true customer, most HME retailers never saw a need to locate their stores in actual retail centers. After all, why would you pay for retail space when your end-users (i.e., “customers” in a retail business) rarely come into your store? That’s why most Medicare-dependent retailers rent commercial space with a tiny showroom and a lot of warehouse space. Once a retailer decides to focus on cash sales, converting a Medicare-dependent location one that focuses more on retail is difficult.

• Merchandising
Due to their showrooms’ space limitations, most Medicare-dependent retailers display a small array of products, often presented to maximize revenue per square foot rather than a positive retail experience. Not only is merchandise often displayed in a non-retail friendly manner, it is often dirty and dusty, and not very appealing to the customer. Retailers focused on an insurance model tend to concentrate on products that are reimbursable. Unfortunately, products provided by Medicare, such as wheelchairs, walkers, commodes, and rollators are not feature-rich, best-in-class products. What Medicare-dependent retailers offer are just the basics and rarely feature merchandise that provide real solutions to their customers.

• Staffing
Personnel hired to work in an insurance-focused store are trained in such tasks as order pulling, warehousing, order processing, and billing. While these skills are essential for an insurance model, they are unimportant for a cash retail store.

• Customer service
To provide great customer service, you first need to know who the customer is. For insurance-dependent providers, the customer is the insurance entity. The end user has little or no monetary responsibility and doesn’t have to be sold to. And since the delivery of merchandise to the end user is not dependent on the quality of the service provided to the end user, the bar for customer service is set very low.

A Retail State of Mind

I have consulted with many companies interested in converting their existing business, or in creating a new business based on a 100-percent-cash model. Let’s say you are finally ready to convert your HME business to an all-cash model. You’re tired of lower margins and realize you can no longer sustain running your company as you have in the past. Where do you begin?

• Location
If you currently have a location that is not in a retail center, the best thing to do is to relocate. But, what if that is not possible, for any number of reasons, including time remaining on an existing lease or the cost of moving? What can be done to convert this store to a retail destination?

First, you will need to create an adequate amount of retail space. For Mobül, that ideal amount of retail showroom space is approximately 3,500 square feet. The store frontage should be all glass, if possible. If the ceiling can be raised to at least 10 feet, do it. This will open up your space and create a better visual for your customers. Also, consider outdoor signage, not only on your building, but also on the street that will attract drive-by traffic.

• Marketing
Now that you are transforming your business into a true retail enterprise, you need to think like a retailer. You must constantly ask yourself, “How can I attract people to come to my store?” Each market is different, but consider a number of advertising channels, including print, cable and local television, radio, and direct marketing. Under the broader marketing umbrella, explore the possibility of building a referral network with local doctors, hospitals, clinics, senior centers, and pharmacies. And, while this may be a novel concept for many, don’t overlook the possibility of digital marketing.

• Merchandising
More and more HME manufacturers are catching
onto the retail friendly movement, by offering retail-focused packaging and point-of-sale displays. These retailers, such as Golden, Nova and Stander, can provide merchandising suggestions, including plan-o-grams, banners, and other attractive ways to draw in customers. Aside from vendor help, you will need to invest in great-looking fixtures and displays.

The bigger merchandising challenge is product selection. Moving from a Medicare model to an all-cash model requires a broad expansion of inventory. Carrying just one or two rollators will no longer work. Adding more featurerich products at higher price points broadens your appeal to more customers. And yet, it is expensive and risky. What if they don’t show up?

• Staffing
You can teach skills to most people, but you can’t alter someone’s attitude. If you have kind and caring employees, retain them and start to teach them how to sell at retail. Bring in trainers, if necessary.

• Customer service
Make the necessary pivot to providing top-flight customer service to each and every person who walks into your store. Treat people with care and kindness.

The Next Step

If converting to an all-cash model seems overwhelming, you are starting to understand it. The process takes detailed analysis, careful planning, and a commitment to making it successful. It won’t happen in a couple of weeks or months. Consider working with someone who is already successful in this space. And know that a lot of it is attitude and having a retail state of mind!

This article originally appeared in the May 2017 issue of HME Business.