Small local stores compete successfully with Guitar center all the time. MAP prices in may cases allow for a 30% margin. It's no wonder Best Buy wants in!!! MI margins are MUCH higher than TVs and receivers. Internet pricing is still healthy for the local music store.
That said some local stores failed when the big box came to town. When you realize the local music stores (and early GC) made 50% margins plus on guitars at one time and 40% on keys and PAs. Mass merchandising brought that down to 30% give or take a couple points. The stores that were heavily leveraged and had debt service based on 50% margins fell by the wayside. Those who paid as they went and carried non traditional high margin music items such as Sheet music and Pianos along with a variety of MI product GC does not carry still operate in the black.

In my store everyone made and or still earn a living playing music. No one is under 40 years old and all make over $10 an hour plus. Some of us have pensions and other income and work because we want to not because we have to. That makes a huge difference when dealing with customers as well as the lack of a straight commission structure. Would people rather deal with that or some 20 something who knows nothing outside of drop D power chords, and cannot tell you what MIDI is or the history of a Fender Strat.

We don't sell work stations any more becasue we were demoing them all day and selling NONE. I suspect they were buying on the net to save 5%. We floor what we sell in the store. If someone needs to save the tax we either sell for less or let them but on the net. All of our computers have online access so we can check prices right there. Many times we will live with a 25% margin to match the Internet price on high dollar items.

Many people will buy at the brick and mortar because we will honor the warranty for them, and deal with the vendor should they have an issue. We will not service an internet bought product unless its a regular customer.

We are not worried about Best Buy. They will have the same model as GC. Low paid kids and high turnover.

Summer NAMM is going to be interesting with the Best Buy development.

(BTW Mitt Romney is not with Bain any more.)