This is happening because the people interested in model kits just order them online. Better selection, convenient, sometimes better prices. This has been going on for about a decade.
Much of it was ironically driven by the hobby shops themselves. RC parts were much more profitable, and thus they would stock more of those at the expense of model railway stuff. That drome more modelers to buy from catalogs or online, and the cycle brutalized the hobby shops.
You're right in part, but something else happened before that - the generation that grew up building scale model train layouts, planes, etc started to die off. Particularly the model train types. I started noticing it in the late 90s, but it really accelerated after the early aughts. I don't think millennials ever cared about building things as much as boomers and older generations did. So now, those that are interested largely abandoned the already dying hobby shop supply stores.
The scourge of ready to run. RtR was a MAJOR push in the 90s, stuff that ostensibly you could just take out of the box, place on a layout, and be done with it. By the 2000s they had started putting decent couplers and wheels on the things so they could legit be run without modification, not always well, but still. Bonus: companies could charge nearly double for this RtR stuff, and people lapped it up.
You can see its effects in the manufacturers as well. There has been massive consolidation in the model railroad industry by the likes of athearn, bachmann, and atlas. Many of the smaller niche companies that were single man or family operations are dead or dying. NorthWestShortLine going under was a massive gut blow to those of us that like to repair decade old models instead of throwing them away.
And dont get me started on the "limited production run pre order" bullshit that's commonplace these days, or the inflating prices for low quality plastics where we used to have metal pieces that ran forever.
Anyone who is a millennial/Gen Z that builds model trains/ships/planes I really feel for them.
It's genuinely impossible to get the kind of cheap kits one used to learn on. Now kits are either pre assembled, babbies first playschool tier, or elite woodworker. Everything else is gone now. No skill involved, its all about spending $$$ to get what you want.
Of course rivet counters hardly helped matters, scaring young people away from model building for decades. When you have tons of coots who constantly criticize your work and berate you for any mistakes you make it's easy to just drop the hobby altogether. Thus these days you either see young kids or retirees with few in between.