I frequent my local fly shops, I make my major purchases there. Rods, waders, wading boots, gear bags, tippet I try to buy as much as possible from a fly shop. I like the personal touch and the service local shops provide.
At the same time, both shops I frequent I'm sure are buying their flys in bulk. In fact one of the shop owners once commented that hand tied flies are not profitible for him. Between the time it takes to tie them or pay somebody for tying, it's more hastle than it's worth. One guy's opinion. If I have the opportunity to buy hand tied flies in a fly shop I generally do so.
Yough, you make some good points that I certainly respect. On the flip side, have you thought about the differences between a traditional fly shop model such as those shops you have worked in and a virtual shop who's focus is based solely on flies, terminal tackle, fly boxes and t-shirts? I don't think he's paying a lease or rent on a storefront, but I can't say for sure. Also, the ability to virtually sell to the world, and buying in bulk would likely allow him to buy at a lower price I would have to believe. There is also no need to stock high priced items such as rods, reels, waders, wading boots, technical clothing etc. Low overhead costs would certainly allow for lower priced flies. I can't confirm this so as I'm not affiliated with theflystop, but I think it's got potential to be a reasonably accurate speculation.
Now I don't know where his flies are tied for sure, but I seem to recall from his website previously that his flies were tied on Targus hooks. I looked for this today, but was unable to confirm it. Which ever the case, it's a local operation, operated buy a good guy who gave me great service over the years in the fly shop he worked in. I'm glad to see his business doing well.