Updated with Wal-Mart's second-quarter earnings

NEW YORK (

TheStreet

) --

Wal-Mart's

(WMT) - Get Report

crown as the low-price king has been tarnished.

The discount giant, which prides itself on its motto of "Save Money, Live Better," appears to have lost its price perception among consumers. According to a survey conducted by WSL Strategic Retail, 86% of Wal-Mart shoppers no longer believe that the retailer has the lowest prices.

"Every brick-and-mortar retailer lowered prices and shouted sales throughout the recession, while the Internet became the go-to place for shoppers in search of the lowest prices," the report said.

This tarnished price perception is clearly seen in

Wal-Mart's second-quarter results

, which marked a ninth consecutive decline in U.S. same-store sales.

This raises a serious conundrum: If Wal-Mart no longer stands for everyday low price in the eyes of the consumer, what does it stand for?

Well, at least according to Wal-Mart, its message of everyday low prices hasn't changed.

"We are the low price leader," Chief Financial Officer Charles Holley insisted on a call with reporters.

But he does note that Wal-Mart is not as low-priced as it used to be and the gap has been narrowed.

"We are focused on narrowing that gap. Everyday low price is the foundation of the company," Holley said.

Wal-Mart's image erosion started earlier in the year, when rival

Target (TGT) - Get Report narrowed its pricing gap with the retail behemoth

.

Target has reduced its prices on key items shoppers remember most, like a gallon of milk, cereal, and diapers, said Customer Growth Partners President Craig Johnson. The "mom shopper" Johnson said knows the prices of these products down to a penny and can see they are saving money at Target.

So while Wal-Mart is struggling to woo shoppers, Target has seen its traffic improve for six consecutive quarters.

The dollar stores have also become a formidable opponent, a fact not being lost on billionaire investors like

William Ackman

and

Warren Buffett

who have recently took an interest in the sector.

Research by AvondalePartners also reveals that both

Dollar General

(DG) - Get Report

and

Family Dollar Stores

(FDO)

are offering more competitive prices for back-to-school than Wal-Mart.

According to analyst Mark Montagna, in a survey of 30 back-to-school items both Dollar General came in 10% cheaper than Wal-Mart. While the unit sizes varies, Montagna said that shoppers are more concerned with the overall price of their purchases rather than pricing on a per unit basis, giving the dollar stores a distinct advantage.

Holley agreed, saying that while Wal-Mart may have the lowest price per unit ounce for a product, at the end of the month consumers only have a certain amount of money left and may not be able to afford the bigger package size even if it provides a better value.

As a result, Wal-Mart is working on offering more smaller sizes on key staples.

In another study conducted by Morgan Stanley in July, 60% of customers said they no longer believe Wal-Mart has the lowest prices.

"Our late July grocery pricing survey shows that Wal-Mart has yet to make any significant moves to widen its price lead. As Wal-Mart's core lower-income customer is struggling in this weak economy, we remain skeptical about prospects for a same-store sales turnaround," Morgan Stanley analyst Mark Wiltamuth wrote in a note.

Morgan Stanley's survey also found that Wal-Mart is still passing through inflation and its relative pricing gaps versus the grocers are largely unchanged.

Aside from its pricing perception, Wal-Mart is also trying to make up for its failed "Project Impact" initiative, which removed thousands of products management deemed unprofitable from the shelves. This resulted in an outcry from shoppers who could no longer find some of their favorite products and brands in stores.

Wal-Mart has been working on restocking about 8,500 of these products, specifically in food, health and wellness.

Holley noted that these categories all reported positive same-store sales as a result.

Wal-Mart is still working on bringing back apparel and hardlines goods it got rid of under Project Impact, and Holley said this will take the remainder of the year.

But Wal-Mart is committed to returning to positive same-store sales by the end of 2011.

Wendy Liebmann, CEO of WSL Strategic Retail, said Wal-Mart has a real opportunity to regain shoppers if the economy and market remains as volatile as it has been in August.

Wal-Mart succeeded amid the crux of the recession, capturing shoppers who were trading down from department stores and specialty retailers. While many of these customers have returned to their favorite stores, they could come back to Wal-Mart if the economy sees a double dip. Wal-Mart is banking on this.

-

Reported by Jeanine Poggi in New York

.

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