Volume and lower overheads.
Somone mentioned above that smaller shops complain about lower volumes and the need to charge a higher margin. This is because with higher volume overhead costs are spread thinner accross more sku's/products. e.g. If a shop has a fixed cost of $500 per week on plant & equipment, deprectiation, interest/finance repayments plus the added variable cost of labour then the more sales (i.e volume) that the shop can move the more they can spread those fixed costs out accross the different number if sales.
So instead of charging say 10% on sales to cover those costs, by doubling sales volume they only need to charge 5% on sales to spread the same amount of fixed cost, which translates into cheaper prices for the consumer. So if you have a look at what type of sales volume say a Wiggle would move compared to your lbs vs. the ratio of overheads to sales, you start to see how they can offer products far cheaper.
This volume/margin relationship is also amplified down the supply chain, so not only is there a direct hit on the stores actual p&l, but when they buy from suppliers the same rings true. That is that by ordering larger volumes the suppliers (i.e. manufacturers) can run longer production runs/bigger batches with the same spec which not only offset fixed costs but is also far cheaper from an operational expenditure standpoint.
Add in the simplification of the supply chain for online retailers (e.g. less distributors/middle men taking a cut) and more often than not reduced freight costs and it makes sense. Your lbs will never be able to compete with a large online retailer on price, yes they need to focus on reducing price where they can but should be focussing on offering a higher level of value-add to customers that they are willing to pay that extra amount.