LBS vs Online stores

In the grand race to the bottom which the Internet has helped promote I think we have to accept that the majority of bicycle parts are heavily commoditised, and therefore they should not be counted upon to be cash generative for a smaller business which cannot command large discounts.

Race to the bottom? I'm not sure I'd call it that. It looks like the market is working; online stores drive down prices for parts through volume buying whilst the internet facilitates their international sales and also freely shares the knowledge required to purchase the correct parts and fit them.

Or did you mean something else?

I agree with your main point - within the market for bike bits there are plenty of different shopping trends and for some the LBS is the obvious place to go. Only if the LBS has its shit sorted, though. If they don't, they die, but really it's their fault for not understanding their customers and where the market is going rather than getting 'unfairly' off killed by CRC, Wiggle etc.