Instead of focusing on what shops are doing wrong, I'm going to focus on what shops are doing right.
I live near a quilt shop that is going gangbusters. She's open Saturdays AND Sundays, which is important to those of us still working full-time jobs. She has a classroom and offers a variety of classes and teachers. The classroom is also available for group sewing time, or if you need help or space with a certain project. She has a generous selection of good quality fabrics. She has a full selection of quality notions. Her store is clean, well-lit, and decorated in an attractive and welcoming way.
However, in my opinion, she has two things that most LQS owners do not possess.
First, she bought a computerized Gammill and started taking in tops to quilt. It was so successful that she purchased a second one. It kept the shop afloat during those first two years where she struggled to pay the rent, and it keeps customers coming into her shop. They come in to drop off a top, and while they're there, they find a pattern or some new fabric they just HAVE to have. So they buy it, make a quilt, bring it in to be quilted, and so goes the circle of quilt life. Brilliant.
Second, (and most important, IMO) she is EXCELLENT with customers. She has this wonderful gift of being able to help you at just the right level. If you need help with color placement. If you need help with a technique. If there's something not quite right with your quilt but you just can't figure out what it is, she can tell you what she thinks and offer suggestions for how to fix it. She's a creative, experienced quilter in her own right, and I have found that every suggestion she's ever given me has been right on target. Despite being busy nearly all the time, she will stop what she's doing to patiently admire your latest project, or chat with you about your pets, or your kids, or your husband. She knows almost every customer by name. You don't get the sense that her relationship with you (the customer) didn't end when your transaction was completed and she moved on to the next customer. THAT is what makes this particular quilt shop very successful.