How is it a false dichotomy? Look at the retail marketplace and it's a wasteland. You have Walmart at the low end, aggressively disrupting entire manufacturing industries in their quest for low priced goods. At the "high" end you have Amazon squeezing out B&M bookstores, electronic stores, etc. Amazon has demonstrated a willingness to tolerate extremely low margins (1-2% if not negative) to achieve marketshare. How can a small business compete?
The only outlier I see in retail is Apple, generating huge amounts of revenue from their physical stores.
This deserves a much longer response than I have time for at the moment. Ultimately the core answer is this: the long tail. That's why we shouldn't fear amazon overly much as if it were just an online walmart. The book and music selection at amazon is better than at any physical store and that's true for almost all variety of goods there as well.
However, there's more. Retail isn't solely defined by low margin businesses like buying canned food and imported low-grade durable consumer goods (e.g. the walmart/target scenario). In many parts of the country there is a trend toward high-end "boutique" shops of various sorts. In my town, Seattle, there has been an explosion of neighborhood butchers offering organic, grass-fed beef et al. But the same sort of principles apply to lots of different businesses.
If your core business is about getting interchangeable mass produced goods into people's hands you are going to lose out to the big boxes and to the amazons. If your core business involves a lot of customer interaction or requires special skillsets or can be decommoditized in some way then perhaps you'll do ok, both online and off.
Trying to compete on amazon's playing field is a non-starter, so the trick is playing on a different field.
Yes, but the market for bespoke goods and organic foods is limited. The amount of disposable cash available to chase these goods is limited, especially during a recession like the current one. And even during "good times" the small boutique businesses don't have the market reach to do much more than eke out a living. And market economics will force out smaller companies that can't fit into either stratum.
I think we forget how many people are employed in retail jobs across the US. In 2010, 14 million people were involved in the retail industry. As retail efficiency improves via WalMart/Amazon/Target, this employment will drop. And as a society, we aren't very good at forecasting where jobs will migrate.
Competition/efficiency helps consumers by lowering prices, but the job loss should be troubling.
