I hate Walmart. But I probably go once every week or two to punish myself for being alive because that's how I roll.
I've bought bikes at Walmart...not for me though. I'd never ride that crap. I've got probably 5 kids bikes that came from Walmart. The reason I didn't buy them at an LBS is because:
1. Even the lowest end kids bikes at your typical LBS are double what they are typically at walmart. Are the LBS bikes better? Yes...too good for my kids in fact.
Which leads me to....
2. My kids treat stuff like crap. It would be a shame if I spent $150 on a little kid bike only to see it left out in the rain to rust, thrown on the ground when they were done playing with it, left in the driveway to be run over by my wife or one of the neighbors. It wouldn't break my heart if I just spent $40-50 on it....which is what the Dora the Explorer and Barbie bikes cost me. They're crap bikes with cheap components, paint and stickers that come off when they get wet. Yeah...so? They'll still last well beyond the years that my kids will use them. A given bike will only last them a couple of years before they grow out of them...then they will get handed down to the next kid in line. I've got 4 different sized kids bikes. They belonged to our oldest daughter and as the younger two grow up we pass them from one kid to the next. It works great and I don't have to go buy new bikes all the time. When they get old enough and learn to respect things and know the value of a dollar I'll get them a bike from the LBS.
But I'd never spend over $300 on a bike from Walmart. They simply do not know how to service it and I have doubts about the quality of assembly. Does a clown at walmart who assembles bikes have a clue about how to set up deraileurs properly, or how about how to do a tape job, or adjust any number of things properly with the correct amount of torque? Even if they supplied an assembly manual explaining how to do it properly it's probably going to get glazed over. I'm thinking no....they don't know how to build up high end bikes. I'll gladly pick up one of these bikes on clearance when they fail and realize they are trying to enter a game that the LBS still wins at. "Joe Plumber" is not going to spend $1500 on a bike. And that's who Walmart's typical customer is...the average Joe. This will not spell the end for your LBS. It only means Walmart is trying to sell something that, in the end, people won't want to buy from them.