One of the two main unions for U.S. postal workers has spent the better part of a year protesting an arrangement that would allow Staples (NASDAQ:SPLS) to sell postal services using its own staff. The American Postal Workers Union argued that the move could be the first step in a plan by the USPS to save money by closing post offices and outsourcing work to low-wage retail employees.

Staples is ending a pilot program to operate mini post offices in some stores.

Last week, the APWU scored a major victory. Staples and the USPS announced that they were ending the pilot program (known as the "Retail Partner Expansion Program") and transitioning the 82 Staples pilot stores to the existing USPS Approved Shipper program. However, this victory may be a double-edged sword.

Growing or outsourcing?
The USPS and Staples announced their partnership program last year. The idea was that select Staples stores would have mini post offices inside. While the existing Approved Shipper program allows other retailers to sell USPS shipping services alongside offerings from UPS (NYSE:UPS) and FedEx (NYSE:FDX), the Staples stores were exclusive to the Post Office.

The strategy made sense for both sides. Staples got extra foot traffic (which it could potentially convert into impulse sales) and discounts on certain products, whereas Approved Shippers pay the same posted rates as individual customers.

Under the Staples pilot, the USPS didn't have to compete with UPS and FedEx shipping options.

Meanwhile, the USPS became the exclusive shipping partner of the biggest office supply store in the country, rather than having to fight for each package with UPS and FedEx. Staples stores also have longer hours than most Post Office locations. Both of these factors could have helped the USPS expand its shipping market share vis-a-vis UPS and FedEx.

However, the APWU suspected that there was a hidden agenda to the USPS-Staples partnership. Staples workers are paid significantly less than USPS employees, and the USPS had conducted studies showing that it was significantly cheaper to sell postal products through third-party retailers like Staples.

The APWU therefore characterized the Retail Partner Expansion Program as the first step in a plan to outsource middle-class jobs to low-wage, high-turnover retail labor. According to union officials, the plan to sell postal products in Staples stores would have inevitably led to closing post offices in the near future.

The union strikes back
While the APWU had protested the Staples partnership from day one, this spring it began to turn up the pressure. It has promoted a boycott of Staples stores and has been recruiting some of the country's largest teachers unions to join the boycott. Teachers are a key customer group for Staples, which sells lots of school supplies.

On July 12, the APWU got a big win when the American Federation of Teachers -- which has 1.6 million members -- joined the boycott. With the key back-to-school shopping season about to begin, this may have been the last straw for Staples.

Staples blinks first
On July 14, just two days after the AFT joined the boycott, Staples quietly ended the USPS pilot. By the end of next month, all of the pilot locations will transition to the Approved Shipper program. This means they will have a less comprehensive set of USPS products that will be offered alongside other shipping options like UPS and FedEx.

Going forward, Staples will no longer have an exclusive shipping relationship with the USPS.

USPS retail partners are not compensated under the Approved Shipper program, so Staples won't see the same level of financial benefits it got from the Retail Partner Expansion Program. (This outweighs the fact that it will be able to offer customers more choice now.)

Staples' decision only makes sense in the context of the growing boycott. Company executives probably realized that they couldn't risk having a weak back-to-school shopping season, given that the chain is already struggling with stagnant sales. Throwing a bone to the APWU was the safest option.

Is it over?
Unfortunately for Staples, the APWU isn't quite ready to call off the boycott. The union is still upset that Staples stores are selling postal products, even if the scope of the USPS-Staples partnership is being scaled back. The APWU is therefore advocating a continued boycott of Staples stores.

In the next few weeks, Staples executives will face another tough choice. If a significant number of Staples customers appear to be supporting the continued boycott, Staples may need to retreat again and limit its shipping services to UPS and FedEx products.

Unfortunately, the efforts of postal unions to protect their members' wages may backfire in the long run. By limiting the reach of USPS services due to their fear that lower-wage workers might replace USPS staff, the unions are handing business to UPS and FedEx. In the long run, this could be fatal to the United States Postal Service's financial integrity.