It was a different world back in the day and they never adapted. We knew Walmart and other big box retail were going to be a threat in the late '90s but the EBs and FuncoLands of the world traded on the experience. As much as things like gutting new copies of games were a thing way back when, it was also an opportunity to get your hands on the actual item. You didn't have as many sources as we do now to get all kinds of information prior to making a purchase. Big box retail (and you could throw Amazon et al in here as well) was always going to be the superior if you knew exactly what you wanted. The game stores couldn't compete on a transactional level. Their edge was knowledge, experience and (formerly) depth as they'd carry more than the big boxes did.
And then they never adapted. They were right in predicting that gaming as a hobby was going to become more and more mainstream. They missed wildly on capitalizing on that fact. When they could have been working out a better infrastructure, they were instead selling Game Doctors and magazine subs. Instead of taking the data from their customers' purchase habits, they instead sold marketing space in their stores. The way forward was to make their niche the best niche it could be. Instead, they went to the generic retail playbook and got burned by it.