That Sears, Walmart and some grocery stores have portrait studios should be of no concern to commercial photographers. The fact that these stores do family portraits for as little as $7.99 and business portraits for $29.95 is meaningless.
Don’t worry about it.
These cheap photo stores are not your competition, unless you’re trying to do $7.99 children’s portraits and $29.95 business portraits.
Don’t worry that some other professional photographer charges $35/hour or that they give away all pictures and copyrights for $199. Unless you’re racing to run your business into the ground, this photographer is not your competition.
Your competition is the photographer who charges more than you because they have what you want.
Always compete up not down.
–Added April 2013: Sears and Walmart portrait studios shut down.