I have enjoyed reading this thread; a lot of thoughtful posts with many, many insights.
Retail has been competitive since the bazaars of ancient Rome and sellers opened their tents. The WSJ had a recent article on how those expensive Swiss watches with names I can't pronounce, are being bought back from their retail outlets because they are sitting unsold.
The reasons for the decline in sales are many but basically many people use their phones as a "watch" while others are using the Apple watch or similar devise that can track your workouts and do other wondrous things.
So consumer tastes change and retailers need to adapt.
In talking with friends who have run small businesses, its very hard, with a lot of local regulations to learn about and follow, especially, if you hire someone. My local sports card shop, has done a great job to stay relevant, one thing Don has done for years is to have autograph sessions with local sports stars (Seahawks, Mariners, UW Huskies, etc). You buy a ticket and can meet the star or you can have the shop get the autograph for you. The vast majority of the tickets are bought ahead of time and he sold them that way as a method to track sales since you can only do so many autographs in a hour or 90 minutes. Recently, the City of University Place determined that the shop needed to collect an admissions tax on top of the sales tax since these were "tickets" . Don moved the shop to Tacoma a few miles away.
I was disappointed when Tacoma Trains & Hobbies closed in 2017. George opened the store in 1985 and had a great selection of trains in many scales as well as model cars, race car sets, rockets, supplies and books. He had a good selection of Lionel starter sets, many box cars, tracks, some engines and a test track that he could demonstrate Lionelchief. He had a professional career prior to opening the shop; I believe his wife worked and he was able to be on her health care plan (which most people know is expensive). He was ready to retire, and had found someone to takeover the store. First, the landlord had an issue with the new guy assuming the lease, even though sales at the store were very strong. George had to also work out how to handle the selling of the existing inventory, which was extensive. The store hours were 9 to 6, six days a week. In the end, the new guy could not make it work and George needed to hold a going out of business sale to close the shop. I see doctors and dentists closing their shops because no one can afford to take over their practices.
To start a new store or buy out an existing store requires working capital to buy inventory, I have no idea how much that would be for a train store, but I suspect that is a challenge for keeping the local hobby shop industry alive.