The U.S. retail industry has undergone dramatic changes, leading to the closing of brick-and-mortar retail stores on a large scale. Understanding perceived market competition among small retail businesses may help explain why certain businesses survive or fail in the altered retail environment. This study investigates small retail businesses’ perceptions of competition within/outside the community, underlying reasons for their perceptions, and variations in perceptions by different business characteristics. Contrary to common expectations, we found that more than half of businesses interviewed were optimistic in the face of competition. Our data reveal two salient underlying reasons for pessimism and five for optimism. These perceptions tended to differ by operational locality (urban clusters vs. urban areas), business revenues, and innovativeness. Based on the findings, we developed propositions and a framework of small businesses’ perceived competition and sustainable competitive advantage. We discussed theoretical and practical implications for small retail businesses’ sustainable growth in the challenging retail environment.

Introduction

The U.S. retail industry has undergone substantial restructuring as numerous physical retail stores, large or small, have been permanently closed in the last few years, a phenomenon called “retail apocalypse” (Helm et al., 2018). The competition in the U.S. retail industry has become more fierce with rapid digitization and the growing dominance of e-commerce retailers (Huang et al., 2019). While some retailers are successfully transforming or revamping their businesses to adapt to the fast-changing retail landscape, many brick-and-mortar retailers are at risk or slow in transformation (Baird, 2018; Helm et al., 2018). Small local retailers are particularly vulnerable to these changes because small businesses in approximately 93% of U.S. counties are still struggling to recover from the recent financial crisis (Morath, 2016). Small businesses and entrepreneurs are the engine for the U.S. economy, accounting for approximately 99.9% of U.S. businesses and 47.5% of the private workforce (Small Business Administration, 2018). However, small businesses also have a high failure rate: around 50% of them fail within the first five years (Otar, 2018; Turner and Endres, 2017). Understanding the reasons for success or failure for small businesses is crucial to the sustainability of local economies (Nadim and Lussier, 2015).