LFS and online has their pros and cons. LFS needs to identify their pros and build on that. Rather than identifying their cons and trying to step up to meet or beat online stores. Prices? It's almost impossible for you to beat online. Inventory? You can't beat online, it will cost you too much to stock it all.
This is how I look at it. If you want to win a sport in the Olympics and you can enter high jump or 100 meter dash, why would you enter the 100 meter dash if you can't run fast. What's the point of training and trying to get to the level of your competition when the odds are stacked against you. But if you're a naturally a good jumper, then put forth your effort in excelling in that sport.
IMO LFS can excel in livestock. Everyone wants to see fish eat, swim, exact size, personality, etc. Same with corals, everyone wants to see coral under "white light" even though no one runs white light. I'll never get that reasoning. Anyways, LFS can take advantage of that market. Fish and coral are 100% impulsive purchases. Everyone in the hobby, buys that "last" fish. That one more coral. That fish they know will probably get beat up by their other fish. When's the last time you went and bought a skimmer or light on impulse.
Look at Tongs, huge selection of fish. And that register just keeps ringing.
Age of Aquariums, great store, nice overall selection, but their service maintenance keeps their doors open, not equipment sales or livestock sales to walk ins.
People won't buy a $20 fish online and pay $50 to ship. Nor do most people wants to spend enough money on fish to qualify for free shipping.
Identify your cliental and go after them. If you're a LFS your cliental isn't the customer who comes to your store, talk to you about skimmers for 30 mins, walks out the door saying he'll think about it, goes home and orders on amazon to save $6. If those are the customers you're trying to catch or appeal to you've already lost.