The genre of literary fiction has a lot to do with character, and the characters in Sula certainly drive the novel. Events and plot elements are important to the story, but we spend most of our time trying to understand what makes the characters tick, what they mean to the other characters, and why they make the decisions they. And we do this by spending time in their heads (see the "Narrator Point of View" section). The plot is almost secondary to the nuances and complexities of the characters, and that's why we would label Sula literary fiction.
It's also possible to think of the novel as a family drama. Much of the conflict takes place between grandmothers, mothers, and daughters. But we can stretch the label of "family" a little to also include Sula and Nel as a family unit. They are more like sisters than friends, and their relationship is the most significant one in the novel.