Labor Unions Could Change The Game For Starbucks, Amazon
Labor unions are catching up with Starbucks and Amazon, which could change the game for the two companies, both on Wall Street and Main Street.
For years, labor unions were confined to the traditional sectors of the U.S. economy like coal mining, steel manufacturing, autos, airlines, public education, and the post office. They shared power with management in labor compensation, work schedules, and working conditions.
In recent years, labor unions are catching up with the modern sectors of the economy like the food service and the e-commerce sectors. Over the last year, several Starbucks locations have voted to unionize, and more sites are planning to do so soon. Last week, Amazon workers on Staten Island voted to create their first union, setting the stage for union votes in other locations.
Unionization will change the way these corporate giants operate their businesses.
“The biggest impact for Starbucks and Amazon is that they will no longer have the right to unilaterally establish wages, hours, or other terms and conditions of employment for employees at their unionized locations,” said Jerry Cutler, senior vice president and general counsel at The New School in New York. “This means that the companies must now negotiate with the unions representing their employees on pay, medical and retirement benefits, work schedules, vacations, time off, and an array of other issues.”
But changing the way these highly efficient companies operate won’t be easy. Labor negotiations are usually lengthy and result in bitter confrontations between unions and management, and may end in work stoppages and strikes. That could undermine the efficiency and effectiveness of serving their customers. For instance, a strike in Amazon warehouses could be disastrous for Amazon’s expedited delivery system.
Meanwhile, the bargaining for better wages and working conditions is followed by price hikes, which sting the company's customers, who can scale back using the products and services of the two companies.
For instance, a rise in the price of Starbuck lattes could push consumers to get lattes from competing coffee shops that aren’t unionized or substitute these lattes for homemade drinks. And that eventually hurts Starbucks’ growth, which results in layoffs. Likewise, rising costs for Amazon’s e-commerce products can push customers to compete with services from other retailers and ultimately hurt Amazon’s sales growth and employment.
Simply put, unionization may sound like a good thing in the short term for labor, but it may end up being detrimental in the long term if it kills company growth and hurts financial performance.
“If the majority of Amazon and Starbucks workers vote to unionize, it will certainly constrain the companies’ profit margins and require the companies to raise prices to consumers,” said Rita Mkrtchyan, senior attorney at Oak View Law Group. “With the already rising prices as a result of inflation, if Amazon and Starbucks were to raise or absorb prices to compensate for union-driven cost increases, it could either lose consumers or damage their financial results.”
And that could be bad news for the shareholders.
Still, unionization in both companies is in its infancy, and the chances of spreading and taking the form of company unions aren’t assured for a couple of reasons.
First, both companies are enormous, especially Amazon, employing over one million workers. In addition, Amazon operates in several market segments with a diverse labor force with different degrees of bargaining power.
Second, management can apply several tactics to slow-down unionization.
“In fact, most unionizing companies will take an average of 410 days for a collective bargaining agreement to be signed between the company and its unionized workers,” said Mkrtchyan.
“Companies will adopt such legal delay tactics so as to discourage other branches from unionizing as well. The effect of unionization on stock prices may only become a rising issue if more stores vote to unionize over time- thereby forcing Starbucks and Amazon to absorb higher costs compared to its industry peers.”
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