WAL-MART AND LABOR

DAVID GHITELMAN / Additional reporting: Elliot Zwiebach

BENTONVILLE, Ark. -- If imitation truly is the sincerest form of flattery, than Steve Burd recently paid Wal-Mart Stores a very large compliment.

The chairman, president and chief executive officer of Safeway, Pleasanton, Calif., told a conference of investment analysts late last month that when Safeway sits down at the table with negotiators from United Food and Commercial Worker Union locals, his company needs "to narrow the gap" with Wal-Mart.

Industry observers told SN they couldn't agree more with this strategy.

However, they pointed out that what Safeway -- along with such unionized competitors as Albertsons, Boise, Idaho, and Kroger Co., Cincinnati -- needs to focus on is not so much getting wage rates in line with Wal-Mart's (a minor problem, they mostly said) or even health and pension benefits (a more expensive concern) as emulating the work rules that govern Wal-Mart's union-free universe.

Chuck Cerankosky, equity analyst, McDonald Investments, Cleveland, told SN, "Where Wal-Mart's status as non-union enters the picture is that it has the ability to have higher in-store labor productivity, not to mention higher productivity in distribution centers."

Gary Giblen, senior vice president and director of research, C L King Associates, New York, voiced a similar view. "It's more the work rules" than the wage rates that give Wal-Mart an advantage, he told SN. "The union has built in work rules that have no justification except to increase union jobs."

A paper published earlier this year by Bradford C. Johnson, a Silicon Valley-based consultant with McKinsey & Co., New York, bears out just how productive Wal-Mart workers are.

Johnson noted that in 1985, Wal-Mart was 40% more productive than its discount-store competition as measured by real sales per employee. By 1995, the company was 48% more productive. And while the competition improved its performance by 28% between 1995 and 1999, Wal-Mart succeeded in boosting its own already-high figure by 22%.

What's more, Johnson wrote that much of the gain at Wal-Mart had nothing to do with increased computerization: "At least half of Wal-Mart's productivity stems from managerial innovations that improve the efficiency of stores and have nothing to do with information technology."

Instead, he observed, it came from the advantage of managing a workplace without union work rules. "Employees who have been cross-trained, for instance, can function effectively in more than one department at a time," he wrote. "Better training of cashiers and monitoring of utilization can increase productivity rates at checkout counters by 10% to 20%."

Union rules are a major reason operators like Safeway have not been able to achieve comparable labor productivity, according to Cerankosky.

"Clerks are in one department, and they can't be ringing cash registers," he said. "Supervisors can't be working the front end. There are hundreds of rules that affect productivity.

"When you don't have these rules, you can have a more flexible labor schedule. The entire team can be focused on sales maximization, and you're not dealing with a hierarchy of seniority and wage levels.

"When I talk to union operators and non-union operators, I really get a sense that the big difference is that one has the burden of work rules and the other one doesn't."

Cerankosky noted that lower wages are not a significant advantage for Wal-Mart.

"Wal-Mart employs more than a million people in the U.S.," he said. "To attract that many people, it has to be paying an attractive and competitive wage. Management seems to do an exceptionally good job at developing people."

The wage differential between union and non-union retail employees is already narrowing, according to a study released last month by the Employment Policy Foundation, a conservative Washington, D.C., think-tank. Using data from the Federal Bureau of Labor Statistics, the EPF found that union and non-union wages for non-management jobs at department stores, discount stores and supermarkets have been converging since 1996.

The study said nationally non-union retail wages could be higher than union ones within 10 years; in California, non-union retail wages will surpass union wages next year; and in Florida, the study noted, the gap could close by 2004.

EPF said the gap is currently 4.7%, with union members averaging $464 per week, vs. $442 for non-union workers.

Health benefits are also becoming more widely available to non-union retail workers, according to the EPF. The number of non-union retail workers covered by employer-provided health plans increased 7.7% from 1996 to 2002.

The study, however, did not analyze the quality -- or the cost -- of those plans.

Safeway's Burd made it clear that although he did not plan to eliminate anyone's benefits or completely do away with benefit increases, he would like "to convert those increases from Bentleys to Chevrolets."

Benefits are an emotional issue, Burd pointed out, "but it's the kind of thing we have to address because the playing field is not level, and we need to level it to get a 100-pound weight off our backs so we can run with greater speed."

The analysts who spoke with SN said they assume similar thinking is going on at Albertsons and Kroger, although neither retailer was available to comment for this story.

Also not commenting, despite repeated phone calls, was the UFCW.

In late November, the union held a national "Day of Action" to kick off its latest effort to organize workers at Wal-Mart. Currently, none of the company's more than 1 million employees is represented by a union.

Analysts said they expected that's the way things will stay, no matter what the UFCW does. Andrew Wolfe, equity analyst, BB&T Capital Markets, Richmond, Va., told SN he gave the current union organizing effort at Wal-Mart a "zero chance" of success.

"Wal-Mart just won't tolerate a union," he added. "I don't think the UFCW is going to put a lot of resources into it. I don't think they see it as a good investment."

Even the union's supporters did not predict victory. Lynn Duggan, assistant professor of labor studies, Indiana University, Bloomington, Ind., and a former UFCW researcher, told SN, "I am glad the union is doing it." She didn't say she thought they would succeed.

Analysts, however, said they were inclined to believe the union will make at least some concessions on the matter related to parity with Wal-Mart in its upcoming negotiations with Albertsons, Kroger and Safeway.

Wolfe said, "I think that, for the most part, the companies will get a lot of what they want. The union will react rationally to what's going on."

Giblen offered a similar opinion. "The union has not been totally rigid," he noted. "They may go along with the idea of preserving jobs."