Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg business Week Inside, from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Okachonally. I don't know about you, but I do everything I can to avoid going to the pharmacy. The products are expensive, they're locked up, the line to pick up medications is long. Sometimes the pharmacy has even closed when I try to go, and overall I just find it an experience I want to avoid. Well, it turns out
I'm not the only one. As Feoni Rutherford writes in the new issue of Bloomberg BusinessWeek, pharmacy profit margins are falling at the biggest chains, which includes CBS and Walgreens write a declared bankruptcy just a few months ago, and a key problem for drugstores is the front of the store, where competition and inflation are making it harder to turn a profit. Jim Ellis is at Bloomberg BusinessWeek Assistant Managing editor, and he edited Fiona's story, which is featured in the
new issue of BusinessWeek magazine. It's available on newsstands, on the Bloomberg terminal and at bloomberg dot com slash At BusinessWeek, Jim joins us from New Jersey. So, Jim, you go to the pharmacy, everything's locked up, The line is long. It turns out you can get a lot of this stuff for cheaper when you order it from some of the biggest retailers online.
That's become the big problems, so many of it. That's become a big problem for the drug store change simply because once upon a time people thought, oh, well, you know, I'm going to go and buy a lot of things as I walk through the store to the back to the pharmacy, and the business model for the pharmacies had been you put that, you know, the pharmacy in the
back of the store. It makes people go through run the gauntlet through all the candy, school supplies, things like that, and they pick these things up, which is showed at a higher price than you get at other retailers, and then they'll also buy the drugs. That's been thrown sort of apart now because people have discovered that you can go to a Walmart, you can go to even Amazon's
pharmacy business, you can find drugs other places. And so therefore, not only are the drug stores losing that business that comes from people picking up prescriptions, they're also losing the business of people buying basically overpriced retail items within their stores, and that's wrecking their financial model.
If wrecking the financial model, and you could see that some people have already kind of thrown in a towel when it comes to that struggling financial model. Tim is waving his hand.
Unless you need, unless you need talent on in the middle of the night for a crying toddler, like it's hard to find a reason Shanalie to step inside one of these I don't know.
I live in New York City, so I like to step inside of it the rec and I don't is because my dog barks on the line a lot, so I don't like to take them in there. But Jim, what are the fixes here?
Well, the fix the first fix is that they've got to come up with some way to make actually going to a pharmacy not such a hassle for a lot of customers. One of the things, particularly since COVID is a lot of people don't like the notion that, you know, they're understaffed many of the pharmacies because they've had shortages of pharmacists because it's been so difficult to work in
a pharmacy since COVID. You know, a lot of people are confronted with lines, they're confronted with weights that they don't want to have, and it's sort of chaotic at the same time within a pharmacy, simply because the pharmacist now is not only preparing your drugs. They may be
giving vaccinations, they may be doing health screenings. There's a lot of things depending on your state, that pharmacists are allowed to do now that they weren't allowed to do before, and that's more work with fewerformacists, and so it's become a less you know, it's not like going to the doctor where you sit up and talk to your pharmacist, and you know, nowadays that sort of jump in wait in line, wait, wait, wait, then finally you can get out and then have to walk back through that gauntlet
of things you don't want to buy because they're overpriced. So what they're trying to do is to figure out a way to get the pharmacy, you know, back up to the front of the store. Now that's like, that's heresy for a lot, you know, for people who work
in this business for decades. But right now that's something that Walgreens is experimenting with, is you know, put in pharmacies at the front so you can come in and one of the things that people don't like about going to the pharmacy, which is waiting, a lot of that goes away simply because you come in and instead of waiting in line, you're using kiosks to put in your information and then you just so you can if you want, go back and wait in your car and they text
you when your order is ready. You can shop the store if you choose to, but more importantly, you can go other places. You can walk around or just sit in your care and be more comfortable. That's very different. It also is a pretty big gamble simply because a lot of the business model counts on that mixture of both pharmacy revenue and that sort of high margin business of retail that they sell within a drug store.
Jim, it's so hard to see to hear you say this and see how it competes with the upstarts that I think have taken over in a lot of the bigger cities. Look, they're not available everywhere in the US at this point, but the fact that there are apps that you can give a phone number to your doctor when you're at the doctor's office getting a prescription written, and then something pops up on the app and asks
what time do you want this drug delivered today? Like that is just so much easier than this process.
I mean, the convenience is something that you know that brick and mortar retailers, like a drug chain, you know, a drug store chain, they just have to deal with that. They are making deliveries available, depends on the market, but often the deliveries that they offer are not quite as good as some of these online only pharmacies. For example, in New York, you can get deliveries at you know, sort of CVS's, but often it's through a third party
delivery service, and some people don't like that. And some people also get confused when they think of it as sort of, you know, should I be getting my drugs delivered by the same person that brings my pizza.
It's not necessarily the same person, but hey, I order Peaza on Friday, so why.
Not well, doesn't jim to that end. What are the risks here?
Well, one big risk is that when you change a habit, when you try to change a habit that consumers have had for sixty seventy eighty years, you know that that will confuse them. That also can make them think, well, you know I've done this this way before. Well maybe if I'm going to have to do something different, maybe I will try something different. Maybe I'll try an online pharmacy. Maybe I will try some other place, you know, maybe
I'll get my pharmacy needs done at a Walmart. Walmart's in very aggressive at expanding pharmacies in all of its major stores, and you know, they don't have the same potentially, they don't have the same hours that some drug store chains do. But especially since the since the pandemic, a lot of the hours that twenty four hour pharmacies had have been cut back. So that actually is something that now other types of retailers like a Walmart can compete on.
It used to be you could say, oh, my local CBS or my local right Aid is open twenty four hours. If I get sick in the middle of that, I can go there. I can't do that at my Walmart. Well, nowadays, a lot of pharmacies are actually, you know, closed after six pm on the weeks. A lot of pharmacies are not open at night, and so therefore it's not that different from an opening standpoint than you could do at a big box store.
Jim Ellis really appreciate you joining us. Bloomberg BusinessWeek Assistant Managing Editor. He's the editor on Fiona Ruthaford's story, which is available the new issue of BusinessWeek magazine. It's on newstands, on the Bloomberg Terminal and at Bloomberg dot com slash of BusinessWeek.
You're listening to the Bloomberg Business Week podcast. Catch us Live weekday afternoons from two to five pm Eastern. Listen on Applecarplay and and Broun Auto with a Bloomberg Business app, or watch us Live on YouTube.
Well, we just spoke to our Real Economy team reporter Mark Niquette, about how different parts of the economy are informing voters, specifically how inflation under the Biden administration is overshadowing what has been the best time to find work in generations on inflation. We did get a bit of good news this week with the latest CPI figures. Core CPI snapped a streak of three above forecast readings, and the year over year measure cooled to the slowest pace
in three years. So that's the data. But how are things playing out on the ground for customers, for businesses, for retailers. We have back with us for answers Katie Thomas, lead at the Carney Consumer Institute. The company looks at consumer behavior data and insights to give businesses an idea about how to engage customers. Katie joins us once again from Pittsburgh. So, Katie, in your most recent batch of research, what are you finding that customers are noticing when it
comes to inflation. Are they noticing that it's easing, because, as we just discussed, that easing doesn't seem to be hitting voters and the polling just yet.
Yeah, while they do comment. Your consumers are commenting about noticing price increases in certain key areas such as food and gas. That being said, I think we're still seeing a bit of a struggle to connect that directly to how they feel about the economy, and so we are seeing consumers just increasingly be cautious. I think that's what you saw in the retail sales numbers this week, which
is I'm not overly concerned. I don't think we're doom and gloom, but we're seeing that slow down that we've been in anticipating that consumers have finally reached a point where they're perhaps really having to prioritize or pick and choose how they're spending. And one of the major numbers
that I'm watching though, is personal job security. So you know, unemployment numbers are one measure, but it's really consumer spend is informed by how somebody individually feels about their job situation and how safe they are to either keep their job or find a new job if they need to.
You know, it's interesting too, you know, when you're an investor, investors talk a lot about inflation slowing, inflation slowing, but really it's the pace of increases slowing and constant. Hunter over at Micropolicy Perspectives and made a great point this week that for many Americans, the price is just so much higher than it was years ago for many products, services, housing. How do you view that disconnect this idea that still
people are living under the weight of these preennily higher prices. Really, even if inflation is slowing at the rate it's increasing.
Right, I mean, I think you're seeing a couple of different factors feed in here. So some of the unfortunate news about consumers is you're seeing savings on a decline. So it's been there was some recovery after the high savings during the pandemic in early twenty twenty three. Now you're seeing that number a steady decline while seeing credit
card delinquencies also tick up. So in some cases, unfortunately, folks probably are not you know, they're probably spending a little bit beyond their means, you know, beyond that, it's just about consumers really evaluating their discretionary spend and how they categorize spend themselves. So where are they prioritizing, where are they making trade offs? And how can they continue to kind of navigate this complicated environment.
What about when it comes to what many would argue has historically been discretionary spending. I'm thinking of, Katie, something like travel, which you know, historically, if people don't have the money to travel, at least if they don't need to travel, they're not going to spend the money to do that. What are you learning sort of like the new normal when it comes to travel.
Yeah, you know, I think we all have a bias to sometimes stick with the way we've defined things in the past consumer discretionary spend, consumer staples, and some version of needs versus wants. But we hear from consumers is that they tend to define things a little bit differently and they're able to really prioritize how they want to spend.
Travel is a great example. So when we talk to consumers, twenty six percent of consumers told us they consider their annual vacation to be a must have spend and in order to enable that, that's actually where we're seeing men pull back in other areas. So perhaps it's food and they're willing to again make trade offs or even cut certain things from their typical grocery shop to really allow for that. Whereas certain items like food that feel like a staple. A lot of times there's things that they
again can give up. Maybe it don't buy as many snacks this week, maybe I go out to restaurants one less a week. And so I really think sometimes it's about seeing that bigger picture of how a consumer understands just how discretionary versus must have something.
Is I think we also have to differentiate types of consumers here, because you kind of hinted earlier about this idea that's some consumers are feeling stressed, and we saw retail earnings this week, we see more retail earnings next week, and you see upper to middle class customers trading downstill, so buying cheaper goods instead of more expensive ones. A lot of commentary around how lower end consumers are feeling stretched.
Where are the biggest discrepancies as you see it, who is feeling the most pressure and will that pressure start to widen among more groups?
Yeah, I think this is another area where we try to take a too pronged approach at it. So what is is the you know, obvious more traditional demographic income split, so looking at you know, high, medium, low income. But another question we asks is if they feel like they're
living within their means or paycheck to paycheck. And what we found is folks that feel like they're living within their means, regardless of what income category they're in, are there's more commonality there and with the people that are living paycheck to paycheck. So I know, for instance, we saw Walmart's earnings release, I actually caught your segment on it yesterday, and I think the high income shoppers there is a great example of people.
I think some of the stigma maybe even.
Around shopping certain stores has just slowly gone away, and as we've had these continually tightening wallets, people simply want to know they're getting the best bang for their buck on the basics.
Yeah, it look well. I was just going to say it's because we were talking about this in the newsroom yesterday after those numbers came out, and there were folks around my desk just talking about how the way that Walmart's in store offering has changed, especially when it comes to groceries in recent years. Just shows that it's really trying to go after so many different types of consumers right now.
Absolutely you see it with some of their new Private Life launches, but they've also done more partnerships with direct to consumer brands over the years.
They're not the only.
Big box retailer doing it, but they are known for being willing to test and learn, but also if something doesn't work out, they kind of cut their losses and move on from it. So I think that you're seeing all these different types of retailers really try to adapt to the consumer and take all the data that they
have and give the best experience possible. And I think even they're realizing certain things that perhaps we traditionally attributed to standard demographics, like income, that's not really the case. You know, everybody likes to get a deal, everyone likes the best bang for their buck, and so moving away from some of those preconceived notions has enabled a lot of success for retailers that understand their value proposition.
Hey, before we let you go, Katie, I want to just get an idea of what's coming up next at the Carney Consumer Institute. I know you have a report coming out next week about innovation and it kind of shows the delta between how consumers see innovation versus how brands internally see innovation. Little bit about what to expect there.
Yeah, well, oh well, you know, we all know innovation is actually like pretty ambiguous as it is. It can be described to be anything from like a simple line extension to some you know, massively disruptive category or technological advancement. But in reality, lately, what we hear a lot of is like consumers are increasingly demanding more specialized, more niche products. And when we found when we went to consumers, is
that's not the case. So almost ninety percent of consumers told us there's either enough products in most categories or
too many in some categories. So it's really about, i think, repositioning inflation to make sure we're doing it in the right way and not proliferating for innovation's sake, by just deepening some of those consumer feedback loops and really understanding when we want better when we do just want new or more options, and kind of really trying to delineate, you know, what's going to be most successful at any given time.
Katie certainly look forward to seeing that report. Thank you as always for joining us us on Bloomberg Business Week.
Mark a journal. How about you let me drive?
Oh no, no, no, no, all right, please, I'll do travel.
I want to drive.
It's a good question.
This is the drive to the clothes thing. Well by around on Bloomberg Radio.
It is Bloomberg a Business Week, and believe it or not, we are only wow.
Look at that is that right?
Eighteen minutes from the close?
Here?
It's time fly when you have fun.
Time does fly when you're having fun.
Well, let's see what our drive to the closes, guest has to say about everything that happened over the last week. Danadoria is co chief investment Officer at Investment. It's a provider of technology to banks and rias, think wealth management software and consulting services to financial advisors. Dana joins us from Sylvania this afternoon. Dana, good to have you with us. I want to talk a little bit about the CPI
report that we got earlier this week. Once again, I've said it many times before and I'll say it many times again, It's not the Fed's preferred method, preferred measure of inflation, but we still saw a pretty big market reaction to it. What did you make of that.
I make of it that it's an overreaction. Thank you for having me.
Yeah, No, Look, I think the market has you know, kind of overshot most of these reports that have come out, and you know, assuming right that the reaction is really confined to that report, you know, I mean, look, we started the year at the expectation of six rate cuts.
We're living in this world of bad news is good news. So you know the fact that not only do.
We see some indicators in growth kind of you know, maybe plateauing a bit and a little bit more muted, something like having inflation come in you know, this report inflation and particularly core inflation coming in better, right, not fantastic, I don't think, you know, in line with what would rationalize rate cuts, but enough that the market can latch onto it and say, look, maybe it's two, it's not just one.
Maybe it's September, it's not November.
So you were kind of talking here about this idea of bad news as good news, and I want to ask you a question that I don't think we ask people enough, which is when bad news starts to hit the table a little more. Yes, in the early terms, we have seen the market really react well to it because of the idea of rate cuts. But how much of that is already priced in? When will bad news just start to feel like bad news?
It's such a good question.
I do think that we've had a pretty poor scenario price in, particularly for areas of the market that we don't talk about as much, like small caps.
So obviously we have a market. You know, there's more than.
Enough discussion around the fact that we have a very concentrated mark get you know, dominated by the top several stocks, and you can you know, cut that line Barbie like, but when you look at something like small caps, which are you know, more interest rates sensitive, they are needing.
To go back to capital markets more frequently.
We have corporate debt rolling over this year, and it really does matter to those corporate teams, you know, how quickly that rate cut proms. So it's understandable that there's a higher beta at interest rates there. But I think that you know, you've seen those areas of the market certainly struggle with respect to you know, the larger and this is the larger stocks, and this has been going on for a while, so I do think there's sort
of a pretty negative outlook priced into that already. And that's one of the reasons that you know, any sign that there might be another rate cut or that it might come faster can have a nice bump, a nice impact on stocks.
Like that because they are you know, kind of more maybe prepped for the worst.
Danni, what are you seeing now on the platform when it comes to cash? And the reason I ask is because we're still waiting for that cash on the sidelines to go somewhere.
And yeah, I'm.
Wondering what you're seeing in terms of cash and if you started to see allocations change from those folks who say, okay, well we do know rates are going to go down at some point, so we want to get ahead of that and deploy this cash. Now what are you seeing?
Yeah, cash is high.
You know, we've seen cash and short term instruments in general, which you know that.
I mean the short term instruments.
Are part of asset allocation, right, so you know, so if you think about how money gets deployed on our platform, a lot of it is deployed by independent financial advisors or by financial advisors that are connected with broker dealers. And then you also, of course that I would say is differentiated from money manager's asset managers broadly distributed, where an advisor may be outsourcing those that decision making to the money managers.
So to an extent, some of it is some of what you see is client.
Directed decisions for that particular client, that particular account, and then some of it is acid allocation decisions that are lead cascading out from a series of models. Having said that, you know, cash short term instruments are high. Obviously you're getting a return there that you haven't gotten in a long time. So it's understandable that you know, people are
kind of parked there and earning these higher rates. I think as part of you know, if that cash, if that short term instrument is part of that overall acid allocation.
Decision, it can make sense.
I think where it's it begins to become a struggle, as if it's money sitting on the sidelines. Money that's you know, maybe longer term money that typically that client, that investor has a risk tolerance, that is that would allow for it to be taking some equity market risk. If you look at that kind of money where maybe they pulled it out of the market from a timing perspective and now it's just sitting there. The problem there, of course, is that you know, fear of losing out.
You're definitely losing out right if you look at what equities have been doing over the course of the last year.
If that money really.
Was better situated in a sixty forty, you've given up a lot of returns sitting in cash.
Well, it's interesting too, you have to wonder what things look like not just now, but six months from now. If you're worried about the volatility, how do you how do you play the market right? Now perhaps people are sitting in cash just because they're scared.
Yeah, no, you're absolutely right, I mean, and that's a typical thing, right that. It's why the adage is always you know, it's not even just timing getting out, but it's time and getting back in and what happens, you know, And so often we see that people miss out on the opportunities because they're sitting there for understandable reasons. They're kind of waiting for a shakeout that may or may not materialize, but the timing of that shakeout is difficult.
So what I would say is.
If you're in that camp, you want to deploy money in the market, but you want something a little bit more protective, there are some strategies that you know, Number one, you can go out a little bit on the curve on fixed income.
You can have you know, as opposed to just cash.
You can be taking some interest rate risks, some credit risk, and still you're sitting in a fixed income investment.
And then of course, if you are putting money into equities, but you're trying to head.
Your bets a little bit around, maybe some of the you know, very risk on quality.
You know, fundamental indicators like quality. Technical indicators like low.
Volatility, minimum variance, portfolios are a nice place to be traditionally have delivered higher return per unit of risk over time, have outperformed over time.
So those are typical places I talked to about.
And I and a lot of the folks I talked to in the industry point out that if you have small caps, which I've long stated, and you know, this is a longer term play, right, this is not we're going to talk in a quarter and it materialized, but you know, longer term, small caps are a nice place to be, particularly small value, because they tend to outperform inflation over time. They tend to outperform in general over time.
You have to have the stomach and the timeframe. But if you like having some diverse pations, small caps small cap quality is a place that folks are looking so like, you know, six hundred right, as opposed to.
Yeah, Dana, I'll always love it when you join us, Thank you so much. That's Dana Dioria, co chief investment Officer over at investmentt They've got a unique view into what clients are doing because they provide tech to banks and rias like wealth manager and software. They do consulting services, also to financial advisors.
This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you can get your podcast. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business App. You can also want us live every weekday on YouTube and always on the Bloomberg Terminale