How can retailers who import goods from China compete with sellers based in China?

Those who sell directly from China, do so on a wholesale level, i.e. they mostly do not offer individual (or small quantities). It just does not make any fiscal sense for them to do so, as shipping and handling cost for say a pair of jeans you may order from China, despite its savings, will be enormous and not worth the buy.

People who import from China, do so in volume and usually prefer the cheapest methodology for shipping, i.e. via Ship, verses air-freight.

The per unit cost of importers is a whole lot more cheaper and hence the merchantability is more attractive.