Urgency of the research. Rapid changes require retail enterprises to create competitive advantages, strengthen their competitive potential, allowing them to stay on the crest during intensive growth of competition. Target setting. Formation of competitive advantages is one of the most important and complex tasks for each enterprise of domestic retail. Actual scientific researches and issues analysis. The theoretical and methodological basis of scientific research in the area of competitive advantage consists of the works of J. Schumpeter, M. Porter, M. Tracy, F. Viersem, H. Hamel, K. Prahal, P. Drucker, K. Kristensen, A. Matveev, S. Orlova, V.Tsarev, in the retail sector – S. Domínguez, A. Mazaraki, T. Melnyk. Uninvestigated parts of general matters defining. There is a need to deepen and improve the theoretical and methodological foundations of the system of forming competitive advantages of the retail enterprise on the basis of using the internal (existing competitive potential) and external (favorable factors of the external environment) sources. The research objective. The justification of the process of forming the competitive advantages of the retail enterprise, which is represented by a number of successive stages, deserves particular attention. The statement of basic materials. The system of formation of competitive advantages of a retail enterprise on the basis of the use of internal and external sources is considered in this article. The authors present a step-by-step sequence of forming competitive advantages, developed technology for the formation of competitive advantages, a comprehensive multi-criteria system for assessing the internal capabilities (competitive potential) of the retail enterprise. Conclusions. The presented system of formation of competitive advantages on the basis of use of internal and external sources provides practical tools for creating a set of actual competitive advantages of the retail enterprise in order to increase its competitiveness.