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.

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 decorator.

January, 2010 — Once we dealt with the city planning department, modifying the plans a couple of times and finally receiving a building permit, construction on the space began. We ran into a few problems creating a third space in a building designed for two, but it was nothing a little additional construction couldn’t solve.

When I told people I was starting a new business, some were surprised. They said at my age, most people were thinking about cutting back or retiring. I was hesitant to tell them my new business wasn’t about my unbridled ambition but was more a defensive move to keep my other business afloat.

Our Yellow Pages ad came out in the phone book. We were getting two or three calls a day, so I had to get voicemail to let the callers know we were not yet open. When one message said a customer was unsuccessfully trying to find the store, I put a big sign in the window to let everyone know we were coming.

February — I had a list of products to consider in each general category and multiple vendors identified for each group. I contacted numerous manufacturers and set up new accounts to buy products for the store. Others had heard about my venture and contacted me. For some of the bigger accounts, I was able to negotiate 90-day terms. But without a credit history for the new company, many of the smaller vendors required a credit card or were only able to give me 30 days.

March — As construction was coming along well, I figured it was time to hire the sales staff, a male to help with delivering big items and a female who might have a softer touch with seniors. I was flooded with resumes and was able to hire an easygoing, personable guy with over 20 years’ experience in the DME industry, most recently as a logistics manager for one of Allstar Oxygen’s competitors. Then I hired a woman with a great personality who had owned her own boutique and had lots of retail experience to complement him.

April — Finally, after many delays and finding creative ways to work around some of the city’s stringent building codes, construction was finished. The cost of the improvements was about 30 percent over the initial bid because of things I hadn’t anticipated. But the place looked great, so it was worth it.

We had problems getting our phone and computer lines installed, and then the phone company changed the FAX number without telling us. Since I had already had stationery and business cards printed, AT&T agreed to pay for the reprinting and give me a free month of service for the trouble.

Since this business was mainly going to be cash, I asked my accountant to recommend a point-of-sale cash register system. I purchased a state-of-the-art system with barcode scanners and touchscreen monitors/computers with Internet access on top of cash drawers. The nice thing is we can bookmark our manufacturers’ catalogs on the Internet and turn the screens around to show the items to customers.

Then I realized that every single item we were going to stock had to be entered into the back-end accounting system with all of the order numbers, pricing info and barcode SKUs. I figured it would be about 40 hours of work and began to panic. My wife suggested hiring a college student to do the data entry. Why hadn’t I thought of that? The student I hired got data entered for about 600 items in a couple of days. Then on his own, he went into the storeroom and put together all of the shelving and arranged the overstock. Who says the younger generation doesn’t have a good work ethic?

May — As we received inventory and began unpacking boxes to stock the store, there was a fairly good flow of customers who had seen our sign and were interested in purchasing items. It was tough to turn them away and ask them to come back in a couple of weeks. Some of the sales reps came in and helped us unpack and stock their items. They also gave us in-services on their products, teaching us how to use them and how to sell them.

On Monday, May 10, the store had a soft opening. We had a Chamber of Commerce ribbon-cutting one evening, and more people showed up than we planned.

On Saturday, May 22, Allstar Medical Supply had our grand opening. It was publicized in a couple of the local newspapers, and I took flyers to many of the senior retirement homes in the area. One of the sales reps came and helped us demonstrate her products. We served food, had raffles for the prizes our vendors had donated and it was a big success.

I’m working every Saturday now since the store is open for four hours, and I want to give my staff a break. In spite of that, it’s satisfying to see the business take off after all of the planning and work. In my plan, I had projected $5,000 in sales for the first month. In our first four weeks, we nearly quadrupled that. Now Jack says we may hit break-even by month six.

July — The stress of managing this project and running my other business almost did me in, and I’m sure my wife was ready to strangle me by Friday nights when I would come home and collapse. But looking at Medicare competitive bidding, my retail store now looks like a genius move. Who would have guessed 32 percent cuts?

After working as a hospital pharmacy manager and founding two home infusion companies, Mike Kuller, RPh, became regional vice president of Apria Healthcare before founding Allstar Oxygen Services in 1999, and Allstar Medical Supply in 2010. Kuller has served on the California State Board of Pharmacy Home Health Care Committee and is a NIPCO Certified Respiratory Care Pharmacist. You can reach him at [email protected].