Stanley Zerden saw signs of trouble ahead as early as last summer.

At a retailers' meeting in June, the operator of a plus-size women's apparel shop in East Baltimore heard some of the biggest chains project a dismal holiday season, with sales expected to slip an unheard of 4 percent to 6 percent.

Zerden, whose store had just gone through a lackluster spring, decided then and there to cut way back on his holiday inventory - knowing he could always hop a train to his suppliers in New York and restock his shop in a matter of weeks if need be.

"Every day we were getting calls from major suppliers with all kinds of ridiculous deals," he said. "It almost came to how much they'll pay me to buy from them. That was the nature of the market."

But Zerden stuck to his revised plan, buying 25 percent less inventory than the previous year - his biggest cutback in 14 years. That move, he now says, helped get him through one of the worst seasons for U.S. retailers in a decade.

"We came through; it wasn't great, but we're still here," he said. "We had the advantage that we can go out and re-inventory the whole store in two weeks," though sales, mostly to lower- and middle-income women, never picked up enough to do so.

As some of the national chains close stores, lay off workers and brace for continuing sales declines, small independent merchants - who account for more than 95 percent of all U.S. retailers but less than a third, by some estimates, of retailers' $3.26 trillion annual sales - face similar challenges in a slow economy. Many continue to deal with lean times by trimming expenses, cutting back on staff or hours, paring inventory and narrowing the focus of their marketing.

But some experts believe that independent merchants, who were not as likely as big chains to take on costly expansions or remodelings in boom times, are better positioned financially in an economic downturn. Experts say independents are small enough and close enough to their customers to react quickly to changes in the market. They're also helped by a backlash to what some see as the "Gap-ification" of America, as consumers tire of all-too-similar offerings from ubiquitous big chains.

"In spite of the really tough times the large retailers are facing, the opportunity for some of the smaller retailers are really quite positive," said Wendy Liebmann, president of WSL Strategic Retail in New York. "That's because smaller retailers have an opportunity to present a much more custom offering."

Dick Outcalt, a partner in Seattle-based Outcalt & Johnson Retail Strategists LLC, goes as far as to say that independent retailers are generally less vulnerable than many big retailers. In December alone, employers cut 104,000 jobs in retail.

"It's the big retailers that are susceptible to the adversity we're facing right now," Outcalt said. "Independent retailers for the past decade have been in a war of survival, and many of them haven't survived. Those that have made it through - particularly the last couple of years, where the big box stores have gotten bigger and ever more powerful - are stronger than many of the big box stores whose names are very prominent."

While bigger retailers have grown by opening more stores, "independent stores have survived because they've gotten closer to their most profitable customers, by better services and better targeting of their merchandise," Outcalt said.

George Whalin, president and chief executive officer of Retail Management Consultants in San Marcos, Calif., said he expects to see a greater percentage of bankruptcies among chains this year than among independent retailers.

"The big guys tend to do things [when the economy is stronger] that need to be scaled back in lean times ... such as expansions and upgrades to stores and extra employees," Whalin said. "The independent retailers don't have that luxury. When the tough times come, they're much better prepared."

No one is denying that times are difficult for retailers across the board, whether they're big or small or sell discount clothing or high-end furniture. And merchants who run just one or two shops can be put out of business by an economic downturn.

"People aren't buying; they're delaying their decisions," said Henry Shofer, president of Shofer's Furniture, a furniture dealer in Federal Hill that has been in business since 1914. "We have a fairly high-end clientele, and they generally won't buy when there's a lot of economic uncertainty. With Iraq and the economy fluctuating, it's unsettling, and a lot of people are holding on to their money."

Shofer said the store has taken steps such as reducing the inventory it buys.

"We always are trying to keep expenses in line," he said. "We don't stock a lot to begin with, and if merchandise is not sold off, we just slow the cycle."

Michael Tanner, who runs two Auntie Ann's Pretzel stores at Security Square Mall, said his holiday season sales fell by about 10 percent, forcing him to cut back workers' hours and invent incentives to keep the best workers.

"I just watch my payroll, and I'm there as much as I can be as an owner, and I really work on training my employees to make sure we have better service," said Tanner, who said he reduced hours instead of laying off workers. "I tell them, 'Sales are slow right now, and the people who show up on time are the ones I'm going to give the hours to.' I make them want the hours."

As one incentive, he has set sales goals and gives out gifts to employees who reach those goals.

Gage World Class Menswear in Baltimore and Owings Mills has also cut back on some employees' hours, by about 20 percent, said owner Bill Glazer. That means part-time, rather than full-time, work for about six cashiers and custodians, Glazer said.

"We try hard not to do [layoffs] because when business bounces back you want those employees available to you," Glazer said.

Glazer, who is also president of BGS Marketing, a consultant that devises marketing strategies for independent retailers, says he urges small retailers to resist cutting back in another key area, marketing and advertising, as most typically do.

"We live it ourselves," he said. "We increase our frequency, we don't decrease our correspondence with the customer."

Glazer also points to the importance of controlling inventory, category by category, and uses an outside inventory consulting firm to do so in his own stores.

If they operate efficiently, smaller merchants such as Gage can shine by differentiating themselves from the chains in merchandise, store environment and service, said Liebmann, the New York retail consultant.

Some of the big chains, meanwhile, have tried to keep costs down by "buying fewer things in bigger quantities, making a lot of ... department stores or chains increasingly dull," she said. "Merchandising excitement goes out the window.

"One of the advantages independent retailers have is knowing the market better and being able to offer a point of differentiation, and being able to react faster to what's going on in the local market place," Liebmann said. "Consumers are increasingly drawn to specialty stores to provide merchandising excitement they're not getting from big box stores."

Local small merchants say they intend to fill that niche, and say they're not worried about sticking around for the long term.

"Our business has been off and on, one month good, then lousy," said Shofer, of Shofer's Furniture. "But "I don't think I'm concerned that it's the beginning of a recession. I think it's a blip and [sales] will go back up."

Says Zerden, of Queen's apparel shop in the Old Town Mall in East Baltimore, "We've been through this cycle before. We can ride through the ups and downs."