One thought on how you can differentiate your shop.
Go out of your way to cater to women. Few shops make any attempt to do this. Have a ladies night once or twice a month where you have some knowledgeable women riders in to talk to women customers. Have wine, cheese, and chocolate. I'm serious. I've seen ski shops do this with good success.
Get the word out in creative ways. Promotional activities at local women's fitness centers maybe?
Why cater to women? 1, nobody else specifically is. 2, they can influence the buying decisions for an entire family. 3, They don't try to BS you and act like they know a lot about bikes (like a guy will), 4, I would guess most are more likely to bring their bikes in for service than a guy would be (maybe sexist, but I think more guys like to work on their bikes than ladies).
Just a thought off the top of my head. Good luck.
One more comment that might provide some food for thought. I just bought a bike for my 11 year old daughter. I had gone to two LBS, had her on a Trek 6000, a Rockhopper, and a Hardrock. Was leaning really toward the RH (Comp Disc), but at $750 that just seemed too much of a stretch for how she will currently be using the bike. The Hardrock (Sport Disc) was around $540 I think.
I had looked at BD, and while there seemed to be some good values there -- their cheesy marketing and amateurish webpage just made me uncomfortable. Sort of like -- if they can't put an effort into a better storefront (webpage), then maybe some of the horror stories are true. Even though I've read WAY more positives about BD -- and not just here on BF either.
So finally I got around to finding IBEX. Their summer sale put their Alpine 550 at $500. Super spec. Not as cheesy in the marketing dept as BD. My email questions were answered within an hour or two by the company owner. IBEX bikes seem to get generally good reviews. So I ordered. It arrived yesterday and I put it together last night. For $500, I got a bike that is spec'd in most ways as well or in a couple cases better than the RH that was $250 more. Neither LBS would deal at all on price...so I guess they must be thriving even in the bad economy.
My point is, I think you will see the BD and IBEX model more and more. Think about how to replicate that on a local scale, then a regional scale. Offer tremendous value with one or two frames built out in a couple variations, and build volume. Maybe it's not the way to go...but it will be a growing force for you to compete against.