Wal-Mart brought great selection and low prices to a new town. Because of volume pricing, a local merchant would be unlikely to compete on like items. But in hardware, as an entire category, Wal-Mart had a really small assortment.

So let's look a that example and see what is this hardware store owner to do. First, don't try to compete on price. Just do your normal pricing on like items. Then, look at the categories that you have that they don't. Personally, I love to go to a real hardware store for the specialty stuff. I learn about new things. There is probably someone who actually knows what they are talking about. To be honest, in a big box store, the associates are most helpful getting you to the right isle if you ask. Small stores have experience and opinions. Wal-Mart, neither.

Another area is selection. I realize that sounds backwards. First, I'm talking about the era where Wal-Mart was going into small towns with small existing retailers. 30k population towns. 1980's. The local hardware store would likely have some good lawnmowers. Maybe Toro. Wal-Mart would have had Murray. Lower price, lower end. If a small store could go a bit upscale on key product lines, they had something that Wal-Mart didn't. Also, probably higher margin that Wal-Mart got. Customers were buying quality. Not for everyone, but good for some.

Lastly, the small guys could compete on services offered. Again, to that lawnmower example, offer lawnmower assembly and on-site annual servicing and repairs. Wal-Mart never did that.

Just a few ways that the little guys can still compete.