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Listen to Your Customers, Wal-Mart

I've never been a retail-store analyst, nor do I have a ton of investment experience in the retail sector. So what makes me qualified to give advice to Inside Value selection Wal-Mart (NYSE: WMT  ) , a $350-billion-in-sales behemoth?

Well, I'm your average American customer. And in the past few years, I've defected to Costco (Nasdaq: COST  ) and Target (NYSE: TGT  ) for consumer goods, Whole Foods (Nasdaq: WFMI  ) for groceries, and Best Buy (NYSE: BBY  ) for electronics and music. Here's how Wal-Mart can win back customers like me.

We can't be bought (anymore)
Wal-Mart has historically crushed the competition simply because its scale and logistical prowess allowed it to sell toilet paper, diapers, and DVDs much cheaper than the competition. Delighted customers flocked to stores.

The competition, including grocery stores, Target, and even Kmart (now owned by Sears (Nasdaq: SHLD  ) ), regrouped and counterattacked, paring their own expense bases to achieve closer cost parity with Wal-Mart.

Now customers can't be bought because competitors have stepped up their game and closed much of the price differential. Wal-Mart needs to realize that it now must offer much more than price.

Bring back the treasure hunt
I remember reading in his autobiography that Sam Walton used to delight in offering customers unique, one-time merchandise that only a Wal-Mart customer would be able to buy at a bargain price. When I walk into a Wal-Mart store, I buy exactly what I came to get: detergent, facial cleanser, and paper towels.

However, when I walk into a Costco, I love looking at the store's specials. I might find designer clothes, a luxury watch, or even a vacation package for half of the normal retail price. Similarly, at Target, I enjoy finding high-quality private-label food and wine at extremely appetizing prices.

Wal-Mart, with its international sourcing and distribution prowess, could do an exceptional job of sprinkling high-quality products at cheap prices among its more mundane offerings. Instead, it seems to have gotten sidetracked with initiatives like its own clothing line, which bombed. In a nutshell, Wal-Mart: Bring back the treasure hunt.

A feel-good shopping experience
Most customers care at least superficially about things like the environment and the well-being of their community. While Wal-Mart has been trying to live better with its new slogan, it continues to battle the media over its monolithic, neighborhood-crushing image. As a result, its stock is down 12.64% over the past five years.

I'll admit that the company does make an effort to help save Mother Earth; it's ramping up its initiatives to sell more environmentally friendly products. But it's also evolved from a store that once was a middle-class-friendly retailer to a brand that's perceived as treating workers poorly. I'm not sure how accurate that depiction is, but it's what the public believes, and those shoppers have voted with their wallets. I think the company might do well to mimic rival Costco and improve its employees' compensation and benefits. The short-term pain of higher costs would eventually lead to longer-term gains from a more positive perception of Wal-Mart's brand.

Foolish final thoughts
Wal-Mart continues to dominate, and it isn't in danger of going anywhere soon. All the same, it's never too late to start the slow process of turning around a gigantic company. If Wal-Mart can hunker down on customer service and repair its brand image, it may be able to resume more robust sales growth. In that case, Wal-Mart's stock could be a bargain at its current price. Just my Foolish two cents.

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Related Tickers

10/21/2016 4:00 PM
WMT $68.34 Down -0.39 -0.57%
Wal-Mart Stores CAPS Rating: ***
BBY $39.46 Down -0.02 -0.05%
Best Buy CAPS Rating: *
COST $148.97 Down -1.07 -0.71%
Costco Wholesale CAPS Rating: ****
SHLD $11.60 Down -0.29 -2.44%
Sears Holdings CAPS Rating: *
TGT $68.23 Up +0.52 +0.77%
Target CAPS Rating: ***
WFM $28.08 Down -0.21 -0.74%
Whole Foods Market CAPS Rating: ****