Nitro is still very popular, just not with a lot of hobby shops. Consider also that a lot of popular brands also aren't carried by the hobby shop for whatever reason.
To be successful in selling nitro (a more grown-up game, really), the LHS will be dealing with people who have much stronger preferences for brands. This means that they have to stock a huge array of engines and accessories, and they have to stock them with competitive prices, or they will not sell them. That is the reality of the internet to brick and mortar shops; If you don't have it in-stock and very close to online prices, you will not sell it. Period.
The world of internet shopping has changed the world of RC forever. We are no longer stuck with what the local hobby shops carry in order to avoid a bunch of phone calls all over the country, trying to track down the right parts. As such, the LHS has had to alter their stock to cater to the crowd who A) needs their help and B) doesn't want to wait 3 or 4 days on a part. This generally means younger guys who like to bash. So a LHS will pick two or three brands of popular bashing vehicles, and fully stock for those, clearing out older stock of stuff that doesn't move fast. In addition to this, you generally end up with a staff that really only knows the vehicles they carry.
Nitro largely disappearing from local shops? Definitely. Nitro waning in popularity? Not that I've seen. Despite the performance of modern brushless systems & LiPo batteries, nitro still offers a lot of performance and, perhaps more importantly, a level of realism that does not exist with flashlights.
I have electrics, and I enjoy them (especially on cold days, since our indoor is electric only). Still, I love my nitros. They comprise 2/3 of my collection, and generally outperform the electrics (which are not slouches, mind you). The only thing I don't like about nitro is the noise when I'm playing in my downtime during business hours; phone rings, and I generally have to shut them down, versus simply pausing with the electrics.
What do I like best from a practical standpoint? They're always ready to go, as long as I have AA batteries and fuel. If I want to run my electrics, I have to spend the evening before charging batteries, and to run all day, you need to have 5 or 6 packs ready to go, a fairly substantial up-front investment, and a bit of a headache to prep.
