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Washington and big box retailers in high stakes showdown

Washington Mayor Vincent Gray
Nikki Kahn | The Washington Post | Getty Images
Washington Mayor Vincent Gray

Wal-Mart has a reputation to protect: its legendary, bare-knuckled labor tactics.

That's why the world's largest retailer has threatened to scrap at least three of six stores planned for the nation's capital if the city signs into law a bill requiring big-box stores to pay workers at least $12.50 an hour. Six other retailers have jumped on board, sending a letter to Mayor Vincent Gray that warned, "Any future plans for retail expansion in the city must be revisited."

It's a showdown labor experts predict will be repeated in other cities, as cash-strapped municipalities try to pare back public assistance for the working poor and large retailers look to America's cities for future growth.

Proponents of the wage bill, formally called the Large Retailer Accountability Act, call Wal-Mart a bully.

"They are known to be quite resolute, willing to take local losses in order to maintain a reputation," said Gary Burtless, labor economist at the Brookings Institution. "It would be a huge blow to that negotiating stance if they ceded to demands from the District of Columbia."

Dean Baker, co-director of the Center for Economic and Policy Research, agreed: "If they're seen to just be making idle threats after they've built up such a reputation, that would be a huge cost to them."

(Read more: Wal-Mart to pull out of D.C. after minimum-wage vote)

Robin Sherk, Kantar Retail's director of Retail Insights, offered an alternative for Wal-Mart—that it offer grocery delivery service operating out of a suburban base, or downsize its planned Supercenters so its store footprints fall below the 75,000-square-foot threshold stipulated by the bill. Walmart Neighborhood Markets average about 38,000 square feet.

"Wal-Mart definitely views the urban environment as a growth area," Sherk said. "I don't think they'll give up on D.C. ... They'll evaluate other options."

Retail and labor experts agree that the chain will walk away, taking a loss if necessary, on some or all of its planned stores if the wage bill prevails.

This prospect strikes fear in the heart of local developers, who were counting on Wal-Mart's draw as an anchor tenant to attract other stores and financing.

Developer Gary Rappaport told The Washington Post, "If there's not a Wal-Mart at Skyland (Town Center), then Skyland is not able to go forward at this time."

Wal-Mart said that in addition to abandoning the three projects still in the planning stage, it "will start to review the financial and legal implications on the three stores already under construction."

(Read more: Wal-Mart's everyday hiring strategy: Add more temps)

Typically, a store would be locked into a lease agreement once lenders come on board and construction begins. Getting out of that could be expensive for Wal-Mart at this stage—two of the stores were scheduled to open this fall—but developers could be left holding the bag if they were so eager to get Wal-Mart on board that they wrote an option to terminate into their contracts.

"When you're trying to attract a retailer like Wal-Mart, you do a lot of unconventional things," said Greg Maloney, president and CEO of Jones Lang LaSalle Retail. "You will need to stretch a bit."

City administrators have been trying to get Skyland off the ground for more than two decades now, and the prospect of another setback frustrates Victor Hoskins, deputy mayor for planning and economic development. The district has invested between $25 million and $30 million in the project.

Hoskins said other big-box chains were considering abandoning D.C. for the suburbs if the mayor signs the bill. "We've heard from a couple of large format retailers," he said. "They're concerned."

Hoskins argued that the jobs and sales tax revenue big-box retailers would bring are something the city can't afford to lose, but supporters of the wage bill charge that big-box stores like Wal-Mart inflict hidden costs on taxpayers and municipalities.

"We want to make sure we don't allow large retailers to come in and pay poverty wages … which basically is going to compel this government to pick up all the social costs," said Vincent Orange, D.C. council member at large. "I know that the wage Wal-Mart wants to pay will continue to have D.C. residents seeking public assistance in a number of ways."

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Wal-Mart says its average nonsupervisory worker pay is nearly $12 an hour, but since that doesn't include part-time or temp workers, critics call the number inflated. In 2011, research company IBISWorld estimated that Walmart sales associates earned an average of $8.81 an hour and department managers earned an average of $11.22 an hour.

Orange pointed to a report issued in May by the Democratic staff of the U.S. House Committee on Education and the Workforce, which said every Wal-Mart Supercenter "may cost taxpayers about one million dollars in higher usage of public-assistance programs" by workers and their families.

Burtless, the Brookings labor economist, concurred: "As a nation, we've expanded programs that provide income supplements to low-wage workers. ... It does work to the benefit of Wal-Mart as well as other low-wage companies in the U.S."

Despite retailers' protestations, experts predict that the pull of the market will eventually be too much to resist.

For [Wal-Mart] to continue to grow in America, it needs to grow in urban areas," including Northeastern and Midwestern cities with strong pro-union roots, said Paul Osterman, professor of human resources and management at Massachusetts Institute of Technology. "That's why these fights are so bitter."

—By Martha C. White, NBC News contributor.

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