I think the LBS margin is thin on a 400-500 dollar bike.
Correct. Net margin is not good on bikes, period. We might mark a bike up 38%, for example. Sounds like a lot, huh? Well, guess what our overhead costs are. Yeah, about 38%. Yay us.
This is why, whenever the store's owner is celebrating that we did, say, $7000 in business for the day, I promptly ask what our margin was. Because that's what counts. Not how much went through our hands on its way to ___________ (Trek, UPS, the landlord, the power company, the gubmint, etc), but how much we get to keep.