We changed a swap meet/BBS into a B&M / Internet store (this was in 1993...people kept telling me the internet was a fad) and the prices do have to go up. Besides the rent (we weren't just in the garage/basement anymore) there is staff (who expect to get paid if you make sales or not) electricity, taxes (oh how there were taxes... I had to pay tax on a desk I brought from home because now it was in a business ) Inventory costs go up (have to have inventory on hand for customers, as well as for the crew on the road at the meets) etc.
It is much cheaper to run an internet business out of your basement than it is to have a full retail presence. It also helps to be passionate and knowledgeable about what you are offering. And try to instill that passion into your staff, as well as train them. BUT, if you treat your customers right, back up what you sell with great customer service, and aren't that much higher than the rest, you can make it. It doesn't matter if your selling pet rocks, and e-cigs, the model is pretty much the same to get a "good" store going.
If I was to do this (and I have entertained the thought), I would definitely take the two front approach, net first, then B&M. You can fund yourself that way, start getting profits going to pay for your store front when you open it. As well as help drive traffic in.
However, here is a little known secret about retail... most don't make a whole lot of money. Some will hit it big, but for the most part, you are lucky to clear 40-60K after expenses if you are doing decent traffic on the prices of these items. You would be better opening a chain of 10 or 20, then you can do some good $$$, but that is a whole nother set of head aches. However, it was a lot of fun, and I met some great people that were my customers, and still run into them online from time to time (I no longer live in the area where I had my stores) and we talk about the good times.
If you provide a service, and provide it well (I know you can get this from FT for 35.00 after 10 days of waiting, or you can take it home tonight for 40.00, isn't it worth it?), then you will succeed. If you act like your there doing your customers a favor by taking their money, and not being helpful, you wont.
This is a rapidly maturing market. If it takes off, you will see more and more places carrying it. (Sam's Club, Wall Mart .. etc..) But there will still be room for boutiques.