Marketplace Podcast Summary: “What’s up with Drugstores?”

Release Date: October 15, 2024
Host: Kai Ryssdal

1. Challenges in the Drugstore Sector

The episode opens with Kai Ryssdal highlighting significant struggles within the drugstore industry despite a robust economy. Major players like Walgreens, Rite Aid, and CVS are facing closures and restructuring.

Walgreens announced plans to close 1,200 stores over the next three years, representing approximately 14% of its national footprint. This decision follows Rite Aid’s Chapter 11 filing and CVS’s own store closures. Kai introduces Matt Levin, who delves deeper into the issue.

Matt Levin notes, “Most of the retail pharmacy stores that I walk into seem to have been malnourished. Stores are a little dingy. Shelves are a little old. The stock feels old. The format feels old” (02:10). George Hill, a healthcare equity analyst at Deutsche Bank, explains that outdated store atmospheres have negatively impacted sales. A significant factor is the pressure from pharmacy benefit managers (PBMs), which dominate 90% of prescription negotiations in the U.S. Earlier this year, the Federal Trade Commission sued the top three PBMs for anti-competitive behavior, further squeezing retail pharmacies on prescription prices.

Paige Meyer, an investment analyst with CFRA, criticizes Walgreens and CVS for their failed expansions into primary care, stating, “they failed just because the consumer is not used to that being their direct care provider” (03:30). Additionally, Professor Dima Kato from USC School of Pharmacy warns that store closures disproportionately affect Black and Latinx neighborhoods, low-income areas, and communities reliant on Medicare or Medicaid, potentially disrupting access to essential medications for vulnerable populations (04:04).

2. Retail Businesses Preparing for the Holiday Season

Shifting focus to the broader retail landscape, Kai discusses how various retailers are gearing up for the holiday rush despite challenges in specific sectors.

Dylan Demery, owner of She's Fly in Fort Collins, Colorado, shares, “We're super excited because it's our busiest year yet and we've been more successful than we've ever been” (04:34). Similarly, Ashley Morgan, owner of Unglued in Fargo, North Dakota, emphasizes the critical nature of the holiday season for sustaining her business year-round: “The holiday season we look forward to for all the reasons, but it also is what keeps our shop sustainable” (13:46).

Philip Rollins, owner of Offbeat in Jackson, Mississippi, reflects on the current mood, stating, “The holiday season is kind of an afterthought right now. Just trying to, you know, make it day by day” (25:27). These insights illustrate the varying strategies and sentiments among small retailers as they navigate the upcoming peak shopping period.

3. Understanding the Inventory to Sales Ratio

A significant portion of the episode is dedicated to explaining the inventory to sales ratio, an economic indicator that measures how efficiently businesses turn inventory into sales.

Justin Ho, a reporter for Marketplace, introduces the concept by quoting Pat Whlan from Sahadi Fine Foods: “The basic idea behind the inventory to sales ratio is that it gives us a sense of how fast inventories are turning over” (06:47). Jason Miller, a professor at Michigan State University, adds that different sectors have varying benchmarks for this ratio. For example, grocery stores may turn inventory monthly due to perishability, whereas clothing stores might only turn inventory every two to two and a half months (07:46).

Nicole de Horatius from the University of Chicago explains that high inventory to sales ratios can signal potential slowdowns, as seen in the machinery sector: “We're at actually one of the highest inventories to sales levels that we've really been at in the last 30 years” (09:10). This buildup indicates that wholesalers are overstocked, likely leading to discounts and reduced future orders from manufacturers.

The discussion concludes with strategies businesses employ to manage this ratio, such as increasing supplier proximity to reduce lead times and enhancing surge capacity to respond to fluctuating demand (10:00).

4. Boeing’s Struggles and Industry Impact

Kai Ryssdal transitions to the aerospace industry, focusing on Boeing’s ongoing difficulties. The company plans to raise billions through new bonds and stock sales following the announcement of laying off 17,000 employees and dealing with a prolonged strike by the International Association of Machinists and Aerospace Workers.

Marcel Zondag, from Western Michigan University, attributes Boeing’s decline to the merger with McDonnell Douglas in the 1990s, leading to complacency and declining quality: “It's a dangerous combination of complacency, worsening quality and now declining market share” (11:07). Tolga Turgoot, an aeronautics professor, echoes this sentiment, emphasizing that while layoffs aim to stem losses, restoring confidence among workers and customers is crucial for Boeing’s recovery.

Ryan Ewing, founder of Airline Geeks, remains optimistic, asserting, “it's too big to go under” (12:02), citing Boeing’s significant contracts, including with the U.S. government, which provide a buffer against potential failure.

5. Foster Care Insurance Crisis in California

A poignant segment addresses the insurance challenges faced by foster family agencies in California. Adriana Muncia, a long-term foster parent, shares her experience caring for 150 children over two decades. However, the withdrawal of a major insurer due to rising legal costs threatens the sustainability of these agencies.

Pamela Davis, CEO of the Insurance Alliance of California, explains that a recent $25 million jury award for foster parent liabilities precipitated the insurer’s exit (17:38). Debbie Manners of Sycamores, a mental health and foster services agency, describes the devastating impact: “it's very hard. It's very painful” (18:18). With approximately 9,000 children dependent on foster families, the loss of insurance forces agencies to either secure costlier coverage or shut down, disrupting essential support systems for vulnerable youths.

6. Electric Vehicle Production and Sales Trends

The episode also examines the electric vehicle (EV) market, contrasting carmakers’ cautious production strategies with robust sales growth.

Despite automakers scaling back EV production targets and focusing more on hybrids, Kelley Blue Book reports an 11% increase in U.S. EV sales in the third quarter, reaching record highs in both volume and market share. Jessica Caldwell from Edmunds attributes the initial overproduction to unmet consumer demand, resulting in dealerships marking down EVs to clear excess inventory: “They failed just because the consumer is not used to that being their direct care provider” (22:21).

Stephanie Valdez of Cox Automotive highlights government incentives and dealership discounts as key drivers of current sales, though Jessica Caldwell warns that these incentives may not be sustainable long-term (23:01). Stephanie Brinley from S&P Global Mobility points out that while EV infrastructure and vehicle range are improving, consumer hesitancy remains a barrier to sustained growth: “consumer anxiety on those fronts is tough to crack” (24:00).

Conclusion

Kai wraps up the episode by summarizing the interconnectedness of these economic issues, from struggling drugstores and retail businesses to broader economic indicators and industry-specific challenges. The comprehensive analysis provided by Marketplace offers listeners a nuanced understanding of current business dynamics and their implications for the economy.

Notable Quotes:

• Matt Levin: "Most of the retail pharmacy stores that I walk into seem to have been malnourished. Stores are a little dingy. Shelves are a little old. The stock feels old. The format feels old." (02:10)

• Paige Meyer: “They failed just because the consumer is not used to that being their direct care provider.” (03:30)

• Professor Dima Kato: “That can result in vulnerable patients not taking their medications on time or at all.” (04:04)

• Pat Whlan: "You can always have full inventory and extra inventory, but it's going to cost." (06:47)

• Marcel Zondag: “It's a dangerous combination of complacency, worsening quality and now declining market share.” (11:07)

• Ryan Ewing: “It's too big to go under.” (12:02)

This summary encapsulates the key discussions and insights from the Marketplace episode, providing a comprehensive overview for those who haven't listened to the full podcast.