Retail Sales: Is There a Place in Your Business?

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By Randy Schmitke, CPA, MBA

You have probably asked yourself or your staff questions like these:

  • Should we get more aggressively into shoes?
  • Should our company grow into the area of post-mastectomy? 
  • Would it be beneficial to our business and our patients if we carried some soft goods and walking aids in our offices?

If you have asked these questions, then you have thought about retail sales as a part of your O&P operation.

What is "retail" and why might you want to enter the retail game?

First, we should define what "retail" is in the context of this article. Although most facilities have a "retail" fee schedule for all the appropriate billing codes, this is not what we are referring to here. The American Heritage Dictionary defines "retail" as the sale of goods or commodities in small quantities directly to the consumer. The key word in this definition is "commodity" this denotes a product which involves little or no customization and is readily available for purchase, most likely in a variety of locations.

Photo courtesy of Wright & Filippis
Photo courtesy of Wright & Filippis

Clearly, products such as extra-depth shoes, canes, and select compression hosiery would fall into the category of commodities. These products need little or no customization and can be found in shoe stores, home medical equipment stores, pharmacies, and even department stores. Businesses selling these types of products differentiate themselves primarily by focusing on selection, service, or location.

Of course, many businesses both in and outside of healthcare have "retail" operations as their core business. The Shoe Carnival sells shoes, Dick's Sporting Goods sells sporting equipment, and both companies focus primarily on selling as much as possible. However, many companies also use retail operations as a complement to their core products/services. If I get a haircut at Susie's Salon, I might also be able to purchase hair gel or other hair products. If I consider using Sam's Custom Fencing Company to put a fence around my backyard, the company may very well be able to sell me sealant or other related products.

The logic in this situation is simple. If my business has already captured a customer or client that has purchased my core product, is it likely that he/she would be interested in a related product? And, does the fact that my customers leave their encounters with me feeling that I can fulfill all their needs related to my product area make it more likely that they will have a good impression of my business? If the answer to both questions is "yes," then I have the opportunity to create a new source of revenue and probably to improve my business' position in the marketplace at the same time.

For example, Sam's Custom Fencing Company is in the business of designing and building fences, and this is where Sam has been profitably meeting the demands of the marketplace. However, with a little additional investment, Sam decides that he will make available to his customers the same sealant he uses on fences. By doing this, Sam has created revenue with little additional cost, and his customers may now have a broader view of the services he offers. In addition, Sam may actually enhance his core operation because someone who comes in to purchase sealant for a fence that is seven years old may decide to inquire about new fencing.

Certainly, there are some business challenges for Sam now that he has decided to sell the sealant and other complementary products. He has to decide how much of the product to keep in inventory, where to store the product, how wide a selection of products he will carry, and so on. These issues are not unlike Sam's other business challenges.

Similar opportunities to create complementary services and additional revenue exist for O&P practices, if a business owner elects to pursue such opportunities.

What are the areas of opportunity for an O&P practice?

The four product areas that appear to have the most logical fit for an O&P practice are shoes, compression hosiery, post-mastectomy products, and soft goods and walking aids. The level of involvement in each product area can be tailored to the desired end result. Each product area also has unique issues associated with it. For example, the post-mastectomy area would require female staffing, whereas shoes would not.

What usually goes wrong with retail offerings in the "normal" O&P practice?

Failing to define what "retail" is and to understand that there are unique business principles associated with it can be stumbling blocks to success. Understanding what you are trying to accomplish and thinking through your strategy for achieving your vision are critical for your plan to succeed.

Other mistakes that can cause things to go wrong include:

  • Lack of commitment by owner and staff; and
  • Unreasonable expectations.
  • Poor initial setup with respect to the physical setup, the legal structure, and the intended staffing;

The initial setup should be pursued with a plan in mind. Too often, we jump into an idea with little time and thought spent on the planning stage. I am not suggesting that a written plan with market analysis and financial projections is necessary, but a simple bullet-point outline that defines the goals and "how-tos" would create structure for the implementation of the idea. Putting a plan in writing even in a minimized format is a great way to create parameters for achievement and reflection.

When considering a plan, you should address several key aspects of the clinical care and business operation. Here is a list of questions you should ask during the planning process:

  • Can you structure the retail aspect of your business such that it is a cash-based operation?
  • What are the legal requirements?
  • What are the billing/insurance issues?
  • Does this structure require unique marketing efforts?
  • Do you have the physical space to separate the functions? Do you want to separate the functions?
  • Are you using the right staff mix to service this aspect of the business?
  • Have you adapted business procedures and processes that meet the needs of this unique aspect of your operation?
  • Have you approached vendors in these product areas in an effort to partner with them to create the best approach and environment for success?

To address these issues, you should consult qualified advisors that can help educate you so that you can make good decisions.

What does it take to have a successful retail aspect of your O&P business? 

We all know that success in business depends on many factors. However, history has proven that the "right" approach and there is no one single "right" approach can go a long way in minimizing the variables that contribute to failure.

Your approach should include 1) a proper focus on the vision without losing sight of the core reason your business exists; 2) thoughtful planning, considering all elements of making the business run smoothly; and 3) adequate process differentiation which allows for the unique subtleties of retail operations.

This is a strategic mind game: should we do what we do best (core competency) and let others deal with this "retail stuff," or should we take on a complementary service/product with the mentality that a "one-stop shop" will improve the success of our business? Hopefully, this article has challenged your thought processes and helped you to answer the question: "Is there a place for retail sales in my business?"

Concepts of Retail

Products or services which begin life as customized are often transformed into commodities through technology, ingenuity, and entrepreneurship. For example, not too long ago you had to make an appointment with your accountant to have your tax return completed and filed properly. This was a customized service that depended on the skills of your accountant. Now, you can get your tax return completed in Wal-Mart (Jackson Hewitt often has a booth there during tax season), online, or through the purchase of an automated software package. The completion and filing of tax returns has been turned into a commodity via technology and the desire of entrepreneurs to create profitable methods of meeting consumer needs and demands.

Our industry is dealing with this concept in many subtle ways. When we begin to put "SM," "MED," and "LG" markings on AFOs, we are sliding down the slippery slope of retail-oriented business. This article is not intended to debate this issue, but rather to discuss the concepts of retail in the O&P practice. O&P is a part of the business of healthcare and to make good business decisions, O&P professionals must become educated about business concepts. Balancing complex business concepts with clinical value to patients becomes the challenge.

Author's note: Information in this article should not be considered advice or consultation. Each O&P practice faces unique facts and circumstances, and each state may have specific requirements. It is intended that readers use the content as a springboard to pursue appropriate legal, financial, and operational consultation.