To be truly excellent, a LHS owner / staff has to put up with more BS than Hercules at the Aegean stables, the patience of 2 Jobs, the money of a Rockefeller, and a love of all sorts arcane strange knowledge. They have to know electronics, mechanics, woodworking, tool making, the boiling point of various chemicals, how styrene is made... Oh, yeah, it helps if you own the building your shop is in, and you can charge rent to other tenants.
We have a really good LHS here in Medford, combined with a bike shop. I'm surprised they're still in business, but they do a good job of having a decent selection of plastic, RC air & car, trains & misc tools, w/out too much inventory. They tend to be willing to bend a bit on price if you're willing to give them business instead of shopping the cheapest ON-Line store you can find.
I feel for owners of LHS's. There are too many people out there where price matters more than service and will come into a shop, ask all sorts of questions, maybe take a look at some gear, and then tell the guy, he's too expensive and it can be found on-line cheaper.
I know my local guy is not going to have everything I want, but I'll sure give him 1st crack at getting it for me.