At a glance, the differences between running a
healthcare organization and a retail business are obvious. Healthcare is one of
the most regulated industries, where organizations contend with tremendous risk
and significant failure costs. Retail has a lower barrier to entry, with brands
vying for consumers’ discretionary dollars and keeping a constant focus on
maintaining profitability. A closer look at the transformation underway in each
industry reveals that their paths are converging.
Market
forces are disrupting long-held business models of retailers and healthcare
organizations alike. Retail store closures announced in 2017 totaled more
than 100 million square feet, with brands shrinking physical
footprints as consumer behavior shifts to online shopping and more experiential
spending. In healthcare, ongoing mergers and acquisitions, including active
vertical consolidation, the increasing impact of technology in healthcare
and continued strong private equity investment are
upending the landscape. Healthcare organizations also find themselves adjusting
to a consumer base, rather than patient base, that increasingly seeks care
outside of the four walls of the hospital and into outpatient, retail or home
settings.
Healthcare
and retail leaders are at critical turning points, confronting a shared set of
obstacles: to enhance their brands, grow revenue, deliver what consumers want
(where they want) and embrace technology to operate more effectively. Taking
advantage of this common ground by pursuing transformation together could
prepare both sides for the future.
A History of Cross-Industry Collaboration
Innovation
and market consolidation trends are bridging the gaps between sectors as
disparate as technology, automotive manufacturing and financial services. To an
extent, healthcare and retail have been intertwined for years. In the chain’s
heyday, Sears department stores offered optical and dental services. Target
stores have featured in-store pharmacies for over a decade, a service line CVS
Health acquired in 2015 and has evolved into clinics to serve consumers’ basic
care needs.
This
history of industry partnerships is entering a new era. In late 2017, CVS
Health announced its intent to acquire Aetna, a development that could push
healthcare farther from the traditional physician’s office or emergency room
and into a retail environment. Walmart’s speculated acquisition of Humana,
announced a few months after the CVS Health-Aetna deal, stands to have similar
implications.
Pressure
to enhance revenue and capitalize on the growing demand for care is pushing
healthcare leaders to improve market penetration and access. While merging with
other hospitals and health systems expands institutions’ consumer base,
aligning with a retail brand creates an opportunity to meet consumers where
they already are. In retail, executives are tasked with reviving their
brick-and-mortar footholds, exploring new ways to attract and keep consumers in
the store (particularly as the mall model comes under siege).
The
increasing convergence between healthcare and retail highlight how well suited
they are to address each other’s core business challenges.
A Vision for Healthcare and Retail's Joint Future
Past
alliances between retail and healthcare organizations are proofs of concept for
bolder collaboration. Future partnerships have the potential to further
innovate both industries by:
- Moving from malls to
ecosystems: As
malls suffer from vacancies and endangered anchor tenants, non-retail
businesses are moving in. But from a healthcare perspective, the common
mall structure — cavernous buildings surrounded by sprawling parking lots
— presents an inconvenience for someone who’s ill or elderly.
Healthcare
leaders and investors may find a better fit with real estate developers that
are shifting focus from malls to comprehensive lifestyle centers. Ecosystems
like Platform LA in Los Angeles and Easton Town Center in Columbus, Ohio, pair
retail and restaurants with offices, museum experiences, residences and
community green space. Wellness centers, clinics and specialty care providers
could find that these mixed-use properties provide the steady, diverse foot
traffic retail-only malls no longer can.
- Elevating healthcare’s
on-site retail options: Hospitals and health systems
have left immense retail opportunity untapped for decades. A visit to most
hospitals turns up the usual suspects: gift and card shops, florists and
bookstores. From a healthcare operator perspective, embedding a more
diverse mix of retailers (maternity apparel, fitness brands, toy stores,
etc.) creates a more complete experience for not only consumers receiving
care, but also their family, friends and hospital staff.
For the
growing list of retailers facing financial distress, healthcare settings
provide a captive audience and a chance to pilot new store formats and
experiences. Brands seeking to shrink their store footprint (and its associated
costs), for instance, might test a pop-up or kiosk on medical campuses.
Four Considerations for Uniting Healthcare and Retail
Bringing
healthcare into a retail scenario and vice versa isn’t a simple plug-and-play
exercise. In both instances, leadership teams and investors must think through
the various factors needed for a successful shift, including:
- Business model adjustments: Health system
leaders contemplating new on-site retail options will need to adapt their
operating models, ensuring they’re equipped to act as landlords.
Conversely, translating healthcare to a retail environment requires teams
to think through how to manage the consumer experience, care delivery,
staffing and technology in smaller standalone facilities. Retail
executives must be ready to answer similar questions about inventory,
product selection and labor needs when moving into healthcare venues.
- Capital investment: Developing innovative retail
experiences in a traditional hospital building — or specialized clinics in
former store locations — demands funding to redesign existing space
accordingly. Retail and healthcare leaders should carefully determine the
projected brand and financial return on investment of any location before
committing to extensive build-outs.
- Product-service compatibility: For
healthcare and retail convergence to succeed, there should be alignment
between the products and services organizations offer, along with the
audiences they target. Pairing sports rehabilitation clinics within or
adjacent to sporting goods retailers, for instance, creates more value
than embedding geriatric care in a college town’s local shopping center.
- Residual impact of
collaboration: Beyond
strengthening revenue and capturing new audiences, collaboration can bring
intangible benefits. Strategic alliances differentiate your brand not only
in consumers’ eyes, but also to other organizations. Health systems and
retailers with a reputation for being progressive could attract additional
alliances with technology companies eager to transform both industries.
Disruption
doesn’t defer to strict industry boundaries — business leaders’ transformation
plans shouldn’t either. Healthcare and retail organizations that embrace their
common ground can establish a stronger foundation for continued growth and a
profitable future.
KEY TAKEAWAYS
To
capitalize on the opportunity healthcare and retail convergence presents,
leaders and investors should:
Think differently.
Look
for commonalities between healthcare and retail, and make a case for how your
organization would benefit from joint transformation.
Plan differently.
Map
your current and future customers’ needs against your organization’s brand and
capabilities to identify complementary partnerships.
Act differently.
Build
flexible business models that let your organization translate its products and
services to new settings and make strategic investments that bring bold
alliances to fruition.
https://www.huronconsultinggroup.com/resources/business-advisory/industry-convergence-reshaping-healthcare-retail?utm_source=healthcaredive&utm_medium=em&utm_term=2018-ba-thoughtleadership&utm_content=em-healthcaredive-ba-retailhealthcare&utm_campaign=7010B000001gaVW
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