ref. the 'frugal' comment; I wish this were always the case; I wouldn't have spunked thousands of pounds on all the pretty shiny bike things I don't really need.
However, I do think correct pricing is crucial to the survival of physical shops. There will always be those that just want the absolute cheapest and will seek it out unquestionably. At the other end of the scale there are those who will just pay the asking price for what they want; unquestionably.
But I think most folk sit somewhere in the middle. If I could go to a physical shop where I can see and hold an item and potentially take it home there and then, I (and probably most people I know) will happily pay a little more than internet prices for the privilege knowing that in doing so I'm also supporting a LBS.
However, if I find as I did in one fairly new indie bike shop in Bristol, the owner has basically bought their entire stock from Wiggle and doubled the price, they can do one.