NEW YORK (TheStreet) -- Walmart (WMT) - Get Report is doing more chair shuffling, bringing in fast-rising Greg Foran to head U.S. store operations under Doug McMillon, the CEO since March.

TheStreet's Laurie Kulikowski sums up analyst feelings on the move as "mixed." Walmart stock, trading around $76, is down nearly 4% for the year to date.

Foran faces a problem of empty shelves, grumpy customers and sales that have flat-lined. The company's strategy against that until now has been to build smaller stores, but they are not delivering the pop to revenue Walmart needs. They are also not drawing in the high-end customers who will shop beyond the grocery aisles and add some pop to sales.

Brian Sozzi says Walmart needs more "Target (TGT) - Get Report and Nordstrom (JWN) - Get Report customers," people "pulling in $60,000 to $100,000 per year." He adds, "Walmart is investing heavily in online and mobile apps. It is also creating smaller neighborhood stores. To get its money back, it will need richer customers who shop the entire store."

In short, Walmart has lost the upper-middle class.

This is obvious when you compare the company with Costco (COST) - Get Report. Costco sales are rising at under 10% per year, with net income under 2% of sales, but investors are willing to pay 26 times earnings for the stock because those customers are upper-middle class suburban families.

Walmart grew by bringing big city pricing to the exurbs and beyond, but now it's left with customers who are lower middle-class or worse. These people are not buying as much groceries and are not going other departments such as home goods. Walmart's earnings report for the quarter ending in January blamed "reductions in government benefits" for some of its problems. In other words, it's depending on customers who get government benefits for sales. That's not a growth strategy.

As a result investors will only pay 15 times Walmart's earnings for the stock. When even its Sam's Club warehouses, which compete directly with those of Costco, aren't growing, you know the company is still misfiring demographically.

What upper-income consumers want is a clean store, a quick trip, well-stocked shelves and friendly people. They also want better merchandise. They don't want to feel a sense of shame walking into the store.

The present Walmart stores fail on all five counts. Higher income customers avoid them like the plague. They even launch protests when one tries to come into their neighborhoods.

Just saying "e-commerce" isn't enough. Walmart is currently the second-largest "etailer," trailing only (AMZN) - Get Report. But it's not catching up. Kantar Retail reported last year even Walmart shoppers are more likely to be using Amazon than

Right now the only differentiation Walmart does is in the size of stores. These range from 260,000 square foot Supercenters and 136,000 square foot Sam's Club units down to 40,000 square foot Neighborhood Markets and 15,000 square foot Walmart Express units. 

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Walmart now has a 25% share of the fresh grocery market. It is experimenting with home delivery in Denver, where Kroger (KR) - Get Report is also experimenting through its King Sooper units.

The great sing Aretha Franklin told ABC News recently one of her fitness tips is power-walking the Walmart aisles. How about an ad where she's constantly stopped in her walk by designers offering high-end merchandise, and by employees offering personal service, while singing her hit "R-E-S-P-E-C-T?"

But delivering on that promise will require hiring people with merchandising expertise and paying them what they're worth. Instead, Walmart has reduced head count by 20,000 since 2008 while adding 650 stores. 

If Walmart is willing to change in order to serve higher-end customers, its growth problem may slowly solve itself. But not before.

At the time of publication, the author was long AMZN and COST, although positions may change at any time.

Follow @danablankenhorn

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates WAL-MART STORES INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate WAL-MART STORES INC (WMT) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, reasonable valuation levels and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • WMT's revenue growth has slightly outpaced the industry average of 4.8%. Since the same quarter one year prior, revenues slightly increased by 0.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to $5,939.00 million or 21.35% when compared to the same quarter last year. In addition, WAL-MART STORES INC has also modestly surpassed the industry average cash flow growth rate of 12.81%.
  • WAL-MART STORES INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, WAL-MART STORES INC reported lower earnings of $4.86 versus $5.01 in the prior year. This year, the market expects an improvement in earnings ($5.15 versus $4.86).
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Food & Staples Retailing industry and the overall market, WAL-MART STORES INC's return on equity exceeds that of both the industry average and the S&P 500.