In other words it's not that the LBS should stock a ton of items, but rather it should do some unique brand/product positioning that allows them to compete....
...that or come up with a different business model - re-invent the LBS.
Bullseye!
There is a shop around the corner from my office, and I have spent a lot of time and money there this year. This is my first year of above-commute level cycling, so lots of junk to buy. I started off the year by wanting a road config for commuting, and wanted to go one step above the dept store, that's all. I asked where they start, they said $650, no used, end of story. No attempt to sell me on time, no attempt to find me a used bike. I grabbed a Motobecheapy for $300, enough bike for the first year to see if cycling stands the test of time or if it hits the usual hobby rotation like my telescopes, golf clubs, and other dust collectors. Now tell me they couldn't have made that sale.
They are an excellent shop, I just think they leave a lot on the table. I'll likely buy a real bike from them in the spring.