When I lived in Oakland, I was lucky enough to be near one of the best shops ever; Starving Musician Berkeley. Yes, the drummer for one of my bands worked there, and yes, I knew the staff pretty well due to playing music in the bay area for so long. Still, it was a great new/used shop.
If I was going to buy something, I'd happily buy it there AND pay a bit more. I'm fine with that when I know it helps the livelihood of my friends.
Local shops changed when mail order started taking over in the 90s. A lot of the local shops in small to mid sized markets started getting defensive and angry. For years these small shops had been the local oracles of gear. They were respected tradesmen. Then, everyone started getting AMS and Musician's Friend catalogs, reading reviews, and believing that they were informed. It's frustrating for an expert when they feel like their knowledge is being rejected, and it's frustrating to have your shop being used for mail-order demos. To me, it seems like the nice shops survived, and the bitter shops died. There are exceptions to this rule, definitely, but overall, this is how it felt to me.
Before I got my job, my plan was this; open a store that was a combination music store, repair shop, my own botique gear show-room, and mastering house. Essentially, I'd be able to do everything, but I'd not have to make my full living at any single one of these things.