Having worked in a small specialty retail (bicycle shop) store I can appreciate the local shop versus online retailer debate (I've posted about it too).
As far as kits, brewers best are good, but they are way expensive compared to Northern Brewer and Midwest. I have ordered my last couple kits from Midwest because of this. When talking to the owner of my local shop about this he showed me how much it would cost to build the kits from scratch as opposed to the BB kits. It was pretty shocking. He can't touch the kit price but by the time you pay for shipping on anything else it's pretty comparable.
Having said that, I have spent the bulk of my cash on this endevor at my local shop. The reason, the respect I have for the staff. When I first walked in there I knew nothing about this. Tim, the owner, spent 2 hours showing me around the store, explaining the process and what he found helpful and what he said I could hold off on. I bought a book. Every time I've been there, he's been super helpful and welcoming, never putting me off as a "newbie" which so many people who work within their hobby can do.
There are places you won't be able to compete pricewise and that's ok. You probably won't have the volume that one of the larger online retailers do. I think the biggest place you can set yourself apart will be service. Welcoming newcomers will be huge. Anytime someone is starting a new hobby it is daunting. Having a staff that is welcoming, rather than elitist, will help you grow the business and develop a loyal customer base.