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Union Debate Could Put Wal-Mart Rally on Strike

Will unionization worries weigh on Wal-Mart's stock?

Steven Senne

Citigroup analyst Deborah Weinswig thinks so. She's downgraded Wal-Mart shares to hold from buy and lowered the retailer's 12-month price target to $48 from a prior target of $53, citing fears that proposed legislation intended to make it easier for employees to unionize will boost Wal-Mart's labor costs and hurt its ability to compete.

Wal-Mart shares were recently trading higher as the Dow stocks posted their biggest point gains since late January. All 30 Dow components, including Wal-Mart, were trading up.

Still, as debate gets going in Washington, Weinswig suspects there is a threat that Wal-Mart shares could suffer.

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Wal-Mart, the world's largest retailer, is the No. 1 target for labor unions, she says. Not only would unionization bring a large number of new employees into the union fold, but the U.S. food retail sector has historically been unionized with the exception of Wal-Mart.

Rep. George Miller, a Democrat from California, is expected to introduce the Employee Free Choice Act, or "card check" legislation, into the House of Representatives as early as today.

The bill is a top priority for unions this year, and Weinswig estimates unions have already spent about $500 million lobbying for it.

"The bill would greatly simplify the process of union formation, limit the ability of employers to caution employees against unionization, and impose several restrictions on the bargaining process," Weinswig said in a research note.

Wal-Mart lives and dies by its low-cost advantage, which has been a huge plus for it during the current economic downturn. Consumers have been flocking to Wal-Mart, some for the first time, to take advantage of its lower prices.

WAL-MART NOT THE ONLY WORRIED RETAILER

Unionization could force Wal-Mart to raise prices, as a union would likely lobby for higher hourly wage rates and increased benefits, says Weinswig. There also could be less flexibility with Wal-Mart's staff, as a union may more specifically define what tasks each job type can accomplish, she says.

However, she notes, there may be some advantages such as lower employee turnover and lower training costs.

It's also worth noting that the concern over the possible passage of the bill is not limited to Wal-Mart. Many in the retail industry have spoken out about it, including industry trade group the National Retail Federation and rival discounter Target.

Retailers are already suffering due to weak consumer confidence brought on by high unemployment and the worst recession in the post-war period.

Meanwhile, labor unions are holding out hope that the new law can breathe new life into their ranks. Labor union membership has been waning. Last year, membership stood at 12 percent of the workforce, down sharply from its peak of 26 percent of the work force in 1953.

Weinswig says the decline in membership reflects both the waning significance of manufacturing in the U.S. as well as the ability of employers to lobby against unionization campaigns.

The proposed law would make it easier for unions to lobby employees to join by requiring only a simple majority to unionize, and waiving the requirement of a secret ballot election. If employers interfere in the unionization efforts, the penalties would be much steeper.

It's still unclear what support the bill will have in Congress. The Wall Street Journal reported Tuesday that key Senate Democrats are wavering in their support for the card-check proposal. That likely means the Senate leadership will be short of the 60 votes it needs for approval.

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Questions? Comments? Email us at consumernation@cnbc.com

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