I feel like we need to redefine "local" as small businesses. Businesses that have not embraced internet sales are going to die off. They must adapt to the changing culture. The ship has sailed on the traditional main street local business. That doesn't mean that the remaining small local businesses have to ask die off but they will have to evolve. Being specialized they sold be able to thrive by selling their expertise along with their products. As noted up thread expert/experienced knowledge is hard to come by and IMO adds significant value.
From recent experience, Sweetwater Sound is a great example of this. Just ordered some stuff from them (Thanksgiving night even) and immediately got an email from a sales rep just to let me know who to contact if there were any issues. Not that Sweetwater is all that small, but they are "local" and I would buy from them again just because the service with a tick better than the other guys. No way I'm driving an hour and half to Fort Wayne to do it though.