Business Week Online, August 12, 2004, Thursday

Copyright 2004 The McGraw-Hill Companies, Inc. All Rights Reserved
Business Week Online

August 12, 2004 Thursday

SECTION: DAILY BRIEFING


HEADLINE: A Wal-Mart with a Union Label?;
Employees in a Canadian store have won the right to organize. It's one more headache for the giant retailer

BYLINE: Amy Tsao

BODY:
Labor unions scored a significant but largely symbolic victory Aug. 3, when a Wal-Mart (WMT) store in Canada became the first in North America to win the right to unionize. Company founder Sam Walton likely wouldn't have been pleased. Then again, he may not have known that his original discount store in Rogers, Ark., would grow into a 4,800-store global behemoth that sets an entire industry's standards for wages and worker treatment.

What happened in Canada "shows that when workers' rights are protected, Wal-Mart workers will exercise those rights for a voice at work," says Joseph Hansen, president of United Food & Commercial Workers International (UFCW), which secured the right to represent Wal-Mart workers at the store.

On Wall Street, the view is quite different. Analysts are already keeping close watch over a variety of labor-related Wal-Mart issues -- including alleged immigrant workers, sex discrimination, health-care coverage, and low wages. Federal investigators are looking into whether it knowingly encouraged the hiring of illegal immigrants through a cleaning contractor. The megachain also is the subject of a class-action suit filed by current and former female Wal-Mart workers, who accuse it of denying them access to promotions. In early August, the University of California at Berkeley released a study that concluded Wal-Mart's wage and health-care practices cost the state of California millions of dollars in hidden costs.

"ONE LITTLE CRACK." Unionization at Wal-Mart, were it to gather momentum, would ripple through all of retailing, Bernstein Research's retailing analyst Colin McGranahan noted in a recent report. "Any substantial progress at [unionizing] Wal-Mart could have a 'contagious' effect," on the sector, writes McGranahan. Adds Emme Kozloff, retailing analyst at Bernstein Research: "Any unionization would impact cost structure."

The right to unionize at one location doesn't mean Wal-Mart is about to lose one of its biggest competitive advantages, low-cost labor. Still, analysts are keeping a vigilant eye on any changes in the labor environment, as unions grow more determined to bring Wal-Mart to heel.
For the past two years, the UFCW has been active across Canada, where Wal-Mart has 231 stores, and where labor laws are generally more union-friendly than in the U.S. The Service Employees International Union this summer earmarked $1 million to "help underwrite efforts of different groups [with] concerns about Wal-Mart's impact on the economy," says T.J. Michaels, the union's spokesperson. According to Greg Tarpinian, executive director of the Labor Research Assn., a consulting firm funded by unions, there is currently "more coordination and discussion on Wal-Mart than at any point in time before."

A regional labor-relations board gave the UFCW the right to represent workers at the store in Jonquiere, north of Quebec. Although Wal-Mart has not announced if it will appeal the decision, the retailer is unlikely to accept the decision without a fight. "We are taking it step-by-step," says Wal-Mart spokesman Andrew Pelletier. Meanwhile, labor's success in Jonquiere should serve to rally unions elsewhere. "The UFCW is dying for just one little crack in the surface," says Kozloff.

EMPLOYERS' ADVANTAGE. Although unions are determined, they have yet to form a united, multi-union. "To organize Wal-Mart will take unions working together on a global campaign," says Kate Bronfenbrenner, director of labor education research at Cornell University.

Even if the labor movement crafts a cohesive plan and pours more funding into the drive, some experts are skeptical that unions can make much of a dent. "American law is ineffective in deterring employers who wants to remain nonunion and are willing to go to the edge of the law, and beyond, to intimidate workers who want to join," says Michael Harper, professor of labor law at Boston University. Essentially, under current law, the punishment to employers who get caught illegally bullying workers is relatively small -- so slight, says Hopper, that many companies think the penalties are a price worth paying to remain union-free.

As for the Jonquiere Wal-Mart, the UFCW's go-ahead to represent the store's workers is just the first step. Next, another labor-board hearing, scheduled for Aug. 20, will determine the bargaining unit's composition. Says Wal-Mart's Pelletier: "We are going to participate."
Meanwhile, Wal-Mart's more immediate concerns are the uncertain state of consumer spending and the Street's reaction to fiscal second-quarter results, due Aug. 12. (On average, analysts expect second-quarter earnings per share of $0.61, up 16% from $0.52 in the same period a year ago, on sales of $7 billion. In 2003, Wal-Mart reported $8.9 billion in net income, on $258.6 billion in sales.) For the second quarter, the retailer is likely to play up cost savings due to its direct-sourcing initiatives, which Kosloff sees as mitigating fears of a slowdown in consumer spending.

FIRST STEP, THEN STUMBLE? That may be, but many analysts figure the possibility of fewer consumer dollars pouring into Wal-Mart cash registers is too high to be ignored. That, together with multiple unresolved lawsuits, has resulted in a lukewarm opinion on the stock. Kozloff rates it neutral, saying she sees "no near-time catalyst" lifting the share price. Of 32 analysts, 14 rate Wal-Mart hold.

Efforts to unionize Wal-Mart will prove to be a slog, and most experts expect the company to mount an aggressive counter-assault. The labor movement will have to be far more savvy if it is to achieve another victory beyond a single store in Canada. "I'm not heartened too much," says BU's Harper of the union victory. Even so, Wall Street is starting to weigh the potential long-term consequences, both for Wal-Mart and other retailers.