I think everyone can have a correct opinion on this topic. There are some LFS that I am really happy I have around me because the owners are informed, give you unbiased opinions even if you arent about to buy something, and keep healthy livestock. Then there are the LFS, as bad as it sounds, that I do wish would go out of business. Everytime I go into certain stores, I see dead fish in every single holding tank sitting at the bottom and I know the LFS doesnt give a rats a** about it. The tanks are disgusting, not well kept, and the live stock perish because of that. These stores SHOULD NOT be in business because they are dealing with live animals. Now for the stores that I value, I am really glad they are around. I count on one or two stores for all my live stock because I know they dont/wouldnt sell you a sick fish. I also use them for drygoods when the prices arent too far out of line with online. I wont spend an extra $30 on a $150 item just to buy locally.. 5-10% is reasonable especially if you can get that item same day and not have to wait for it to come by mail.
Overall for me life in this hobby would be pretty miserable without these couple good LFS around me. I wish there was a good LFS closer to me because I have to travel a decent distance to visit them. Dartmouth, MA could really use a good LFS if anyone is interested
As far as the original question, I do think LFS are VERY necessary to this hobby. If they were gone so would probably 50% of reefkeepers.