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Thursday, August 10, 2006

Wal-Mart: Trust The Union Label (WMT)

Late word comes that Wal-Mart will allow all of its stores in China to be unionized. That will cover a growing number of employees that now numbers about 30,000. The Chinese government has encouraged the media to view this as benign because the union has little if any bargaining power. The move does, however, place the Chinese government at the center of Wal-Mart's operations in the country, since the union is practically a branch of one of the government's departments. There is clearly no guarantee that in the future the union will not ask for better wages, better work conditions, or better benefits. The Chinese government can certainly use the move as a template for ways that it can apply pressure on other large foreign companies that do business there.

While the Chinese government has not indicated that it plans to use the union as a hammer to drive its presence into Wal-Mart, it introduces something that the company need no more of: uncertainty. After retreats from Germany and South Korea and same-store sales in the US that are barely ahead of inflation, Wal-Mart's stock has taken an uncharacteristic stumble. The stock has dropped from nearly $51 as its peak over the last 12 months to under $44, near its 52-week low of $42.31. In late 2004, the stock approached $60.

The other Pandora's Box that the Chinese labor move opens is the potential union movement against Wal-Mart in the U.S. The AFL-CIO has been trying to get its nails into Wal-Mart for many years. The company hardly needs the big American union to use the China situation as leverage to work its way into Wal-Mart's US operation, a move that would be bound to increase wages and benefits and might cut Wal-Mart's margins.

Because that could take the price of the retail giant's shares down further.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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