Absolutely. Having worked for years in an indie store and a short time in a corporate-whore store, both were ultimately closed due to online purchasing. How many times at that indie shop did we offer to special-order an item? Many times. We had to, because we didn't have the room or resources to carry a deep back catalog of specialized items. When people start saying "nah, I'll just order it online," then you have trouble. Soon they stop coming in at all, ordering from Amazon with free shipping.
Sure, downloading has an impact, but I think that the online marketplace's effect is much greater.
Let us also remember that not all downloading is illegal. [iTunes, eMusic, etc.]