But when the worst case actually happens, you can either go into panic mode or you can get busy figuring out how to compete.

The bad news is that your fear of big box retailers is completely grounded in reality. When a chain store moves into an area, people really do tend to buy a higher percentage of their purchases from them than they do from smaller, local establishments.

But the good news is that thousands of small businesses find a way to survive - and thrive - even when a large store encroaches on their territory. The key to staying alive is to develop a strategy that emphasizes your strengths and differentiates you from the competition. Here's what you need to know . . .

Stay Calm

Right off the bat, you need to stay calm and avoid making any knee-jerk decisions that can come back to haunt you later. When a mass merchandiser moves in, some small retailers overreact and make plans to put distance between them and their new neighbor through relocation. Unfortunately, emotionally-charged decisions like that can prove fatal and may be the sole cause of a business' demise.

Get the Facts

A much better approach is to do your research and get the facts. You need to know how the chain store operates and how your business may be positioned to exploit a competitive advantage. Yes, believe it or not, your store may have some unique characteristics that give you an edge over the competition. If you aren't sure how to identify your competitive edge is, you should think about hiring a consultant to walk you through the process.

Narrow Your Focus

Big box stores offer a wide variety of products to their customers. But because they are so focused on providing a one-stop shopping experience, their product lines rarely have any depth. One way to differentiate your store from their's is to focus on providing a comprehensive assortment of merchandise in a specific product line. Although you can also stock some products with mass appeal, your primary focus should be to offer the most complete line of products to a smaller segment of buyers.

Customer Service

Many small retailers survive simply because they are able to provide superior service to their customers. As a local business owner, you are uniquely-equipped to develop long-term relationships with your customers and respond to their needs. You may also have more flexibility to negotiate customer service problems than a large retailer because your hands aren't tied to policies formulated at corporate headquarters.

Product Pricing

Mass retailers are known for their ability to beat the little guys on price. However, you can turn the tables on pricing by offering loss leaders to boost traffic and attract new customers to your store. It's also common for small businesses to remain competitive through their willingness to negotiate prices. When necessary, you can haggle even if your competition can't.