Often, small players in big markets suffer from the inability to purchase inventory at the same cost as larger players. If you look at the record industry in total, it could be frightening for any record or music retailer. The only obstacle holding back MP3 from totally revolutionizing the way music is produced and sold is the copyright and intellectual property laws. Yes, you can already down load CD-quality music from sites on the web using MP3. Back to the store's competition for a moment.
Consumers can buy music CDs legitimately on many various web sites.
To most music lovers, the ability to drive two minutes to your friends' store and buy a CD and listen to it on the way back to the dorm is worth the extra cost over the cost of the product from competitors. So that's an edge worth touting. One marketing special would be to look to the college's students and try to develop relationships with them in order to foster increased sales. Look for any and all media sources that target that student body. Get involved with student government.