Labor Act Hits Wal-Mart Prematurely

Call it the Employee Free Choice Act or the card check bill, but if new legislation amending labor laws to make it easier for unions to organize does squeeze through the United States Senate, it could have some interesting and unintended consequences for Wal-Mart, among others.

The bill already is having an impact on Wal-Mart as Citigroup analyst Deborah Weinswig lowered her rating on the company's shares because of concern that it is the top target of the unions backing the legislation. If it passes, she asserted in a research note, "the company could have to concede higher wages for more seasoned employees and increase employee benefits significantly."

She has a point, yet passage of the legislation isn't necessarily a disaster for Wal-Mart. The company has dealt with various labor regulations and union forces internationally â€" including a food workers union that operated in its German stores before the company pulled out of the market and a state-sponsored union in China -- and would have experience that could help it manage the situation. More importantly, Wal-Mart would retain the competitive advantages it derives from its industry leading distribution and data application capabilities.

In contrast, Target never has operated with unions and could have a harder time adjusting to a union workforce, particularly as it puts more employees on the sales floor than does Wal-Mart. Target hasn't been subject to the same degree of labor criticism as Wal-Mart has, but unions and their allies have it in mind. Target will become even more of a labor concern as it expands its food operation and increasingly competes with union organized supermarkets.

Weinswig's particular decision as regards Wal-Mart shares stems in part from her determination that Wal-Mart will be the first non-union retailer that labor tries to organize, but it might not be a singular target. One reason that a labor-led effort against Wal-Mart expansion in California has faded is because the United Food and Commercial Workers Union has shifted resources to a campaign pressuring Tesco as it attempts to organize that company's Fresh & Easy stores. The UFCWU has been zealous in its Fresh & Easy organizing drive, even challenging store liquor license applications and attacking Tesco's environmental record as tactics to gain leverage over the company. The Tesco decision to start worker pay at $10 an hour was viewed by some as a tactic to make union representation less attractive.

Of course, Tesco is actively competing against Kroger, Supervalu and Safeway in California, and their employees are UFCWU members. If the Employee Free Choice Act passes, it would make Tesco, their competitor and a Wal-Mart rival, easier to organize. Yet, passage of the act also would give Tesco, and Wal-Mart, some common interests with the supermarket chains, and that could have consequences for the retailers and unions.

In California, during two labor actions over the course of the last decade, Kroger, Supervalu and Safeway have managed if not to break the union then to twist it into concessions first on wages then on health care benefits. They did it by sticking together through a long strike, with the result that unions had to make wage concessions to get a settlement, then, a few years later, through a long negotiation that got the wage concessions reinstated but got the supermarkets what they really wanted, a new, flexible, market-based approach to benefits, one championed by Safeway chairman Steve Burd.

California supermarket employees still enjoy relatively good compensation, but their employers held the line on union demands by sticking together. In effect union activity forced supermarkets to organize.

All that suggests that predicting what will happen in the event the Employee Free Choice Act passes isn't a sure exercise by any means.