The hobby itself is relatively healthy, especially when we take into account the variety of kits and subjects, as well as tools, supplies (especially aftermarket bits for detailing), and manufacturers. Our time could be described as a true golden age.
As far as the old local hobby shop goes, yes, there is a change taking place, and it's sad for the owner of a business, if he has to close up shop, but I think it's far more common that a shop owner retires, rather than that he goes broke. That's been going on for years, though. Before there were a lot of little mom-and-pop hobby shops, there were guys selling products out of the their kitchens or garages (Monogram started that way, I think), and LHS and dime stores put them out of business.
With the Internet, the average modeler has access to a whole store, basically. It's nice, and nostalgic, and also convenient, if you have to pick up something right away, to have a local shop, but I don't think the demise of the LHS is a sign that the hobby is in trouble.
I know of some mom-and-pop stores that have adapted, too, and use the Internet. For example, the store I went to as a kid, Penn Valley Hobbies in Lansdale, PA, has an online store, an eBay store, and they still maintain the original shop, which is crammed into half a twin, albeit with an extension out the back, and with hours now only on Saturdays. They're still doing well.
So generally, I think the hobby is doing well. Are there as many kids building models now as when I was a kid in the 70's? I don't think so. But I think there is a growing number of guys who come to it as adults now, and we didn't have that quite as much back then.