There's one thing that Wal-Mart absolutely cannot compete on: expertise of sales staff. If you sell something that's fairly complicated and requires a lot of knowledge to buy correctly, your customers will get appreciated added value by having an expert sales staff present.
Flat panel TVs are a good example. My mom's looking for a flat-panel and the staff at the Wal-Mart couldn't address any of her questions, such as the high-altitude problem with most plasma sets she'd heard about, or the differing types of HDTV and what they mean, etc. She thought there was a choice between HDTV and plasma, and the Wal-mart staff couldn't help her at all with this misconception. My mom asked me, so I gave her an overview of the technology and terms, and told her to go to a specialized store with knowledgeable staff to complete the purchase. You do not want the quality of your $4,000 purchase to hinge on the knowledge of a minimum wage Wal-Mart employee.
Of course that brings a side question of mine. Why do they even sell sea-level plasma TVs in a town at 6,500 feet?
True enough, but having been in business for twenty-five years, let me assure you of this: Most people care about ONE issue, PRICE. I've been there and fought the added-value-through-knowledge battle. The percentage of people willing to pay a premium for that level of knowledge and service is unfortunately tiny. Most people just want a "flat TV" or whatever. They don't even care about details or ratings. They want that "flat screen" or "big screen" or you name it, at the cheapest price, and that's that.
Discriminating buyers like you describe are a small percentage. And many of those discriminating buyers will go to a specialty retailer, soak up the knowledge and advice they need, then go buy the product elsewhere to save a hundred bucks. In the end, once a market shakes out, you'll wind up competing on price virtually 100% of the time.
MM