This Business 2.0 story has excellent background on category management, the process by which big retailers are increasingly surrendering stocking and merchandising decisions to their vendors. The article concludes:

Category management is retail's Faustian bargain: Lured by the savings and convenience of getting manufacturers to mind the store, retailers have ceded not only responsibility for their shelves but also any hope of differentiating themselves.

Any retailer who lets their vendors run the show is doomed to fail the blindfold test: You lead a blindfolded shopper to aisle five, remove the blindfold, and see if she can identify the store she's in.

This is good news for smaller retailers. The irony is that by letting their vendors dictate the merchandise they keep in stock, big retailers are actually starting to carry a narrower selection of items (as the Borders example in the story shows) that is increasingly similar to that carried by all other retailers. So, despite their size, small retailers can actually carry a wider selection of merchandise if they are smart about how they manage their inventory. And they better, because they sure won't be able to compete on price.