ITT: (mostly) people who don't understand the business.

(nice) shops don't make much money on labor. Some survive solely on labor, but they are usually one to two man operations that are struggling to get by. Their inventory will be even smaller than most brick and mortar shops.

The purpose of having a service department and stocking parts is almost exclusively customer satisfaction. Many people like to purchase things from businesses that treat them well and are knowledgeable, and a good service department is an excellent way of making sure clothing and new bike sales continue. Gets the word of mouth out to new cyclists, as well.

The shops I've worked at, and frequented before I was a wrench were friendly places where I could test ride new bikes, get advice, talk bikes, find out why my ride wasn't working as good as it should. As a customer, I needed a place like that; a cool place to hang out and spend some money if I could afford it.

On the flip side, I don't understand clothing stores. The added cost isn't worth it. I don't really want to try on clothes all day, and I don't want to talk to the staff about threads. Hence: I buy my stuff online. The value, for me, isn't there.

The model shops are faced with now is about attaching additional value to the brick-n-mortar location. Lowering prices is a losing proposition.

LBS typically = speed and convenience.
I always give my LBS a chance to compete with my online buying habits.
Sometimes they get close enough for me to give up some extra cash to a. get the product faster and b. help to keep them in business.
I'd say that equates to 50/50 in terms of annual spend for me - but probably 80-90 online/10-20 LBS for the total number of items.