Based on my observations over the recent years, I do not think there is in fact a lack of demand. But it seems that bike shops that specialise in transportation may be in a better position to sell city bikes than bike shops that are diversified. Visiting Adeline and HUB in New York underscored this idea.
I would say that for shops selling transportation bicycles, location is key. Adeline Adeline is on a small and quiet street in TriBeCa. Hudson Urban Bicycles is on an equally small and quiet street in the West Village. In both cases, there are bike lanes literally just out the door, with protected greenways nearby. This sort of thing is absolutely crucial for beginners looking to test ride some bikes, which is precisely the category many potential customers fall into. They would like to ride in the city, but quite possibly they have never actually done so before. Their first cycling experience in ages might very well be this test ride outside of the bike shop. It makes a huge difference whether the space outside the shop is beginner-friendly.
When I was shopping for my first bicycle in the Spring of 2009, I was not confident on a bike at all and could not yet imagine riding in traffic. I found it impossible to properly test ride a bike in almost any local shop, because the spaces outside were not beginner-friendly. While it's hard for established shops to change that reality, a new shop devoted specifically to city bikes can choose their space with access to infrastructure in mind.
Appropriately informed staff are important to selling transportation bicycles as well. In typical bike shops, most sales staff tend to be avid road cyclists, many of them racers. I have listened to quite a few steer customers by default toward cyclocross bikes with drop bars for commuting. I have also witnessed sales staff actively discourage customers from getting bikes with step-through frames or internally geared hubs, citing performance drawbacks. They did not even ask the customers how long their commute would be before saying such things.
While hanging out at HUB, I watched the owner talking to a couple who was new to cycling, and as they chatted I could see that couple grow more relaxed about the prospect of riding in the city. In shops that do not focus on transportation per se, I often observe the opposite happening: The longer a potential customer talks to a member of staff about commuting, the more concerned their facial expression grows. The "information" they are receiving is obviously scary and confusing. Bike shops that sell many types of bicycles cannot usually afford to hire separate sales staff to handle the city bikes.
No less important is the atmosphere inside the shop. The interiors of Adeline and HUB are heavenly microcosms - worlds where transportation cycling is normal, cool, intuitive, safe, and has an obvious place in everyday life. And the creation of such an atmosphere is a huge public service as far as I am concerned. Even if the customer walks out the door without buying a bike, they will still walk away with the impression that transportation cycling is fun and, above all, normal. They will be more likely to come back, or at least to keep cycling in mind as a valid possibility. When city bikes are mixed together with all sorts of other types of bikes on one cluttered floor space, it is impossible to achieve this kind of ambiance; it is impossible to communicate this message. I do think it's possible for diversified bike shops to present transportation cycling in a similar light by designating a special area to them, and then staging this area as if it were its own boutique. But in actuality this is seldom done.
Several members of the bicycle industry have mentioned to me now that it is easier to start a dedicated city bike boutique in a town that already has a dozen bike shops than it is to get existing shops to carry city bikes. And I have seen plenty of evidence to support this. Aside from the issues already mentioned, existing bike shops tend to err on the conservative side and stick with what they know. Even if they delve into city bikes, they are not going to start carrying 5 new brands right away; they might start with one or two. But that might not be sufficient to be truly effective. Hopefully, some brave entrepreneurs will start transportation-specific bike shops in Boston soon, as well as in every other city that is ready for them.
Aside from bicycles, Adeline specialises in exquisite accessories the likes of which you might not find elsewhere: the latest in bicycle bags, jewelry, books, unusual clothing. HUB on the other hand, boasts an entire show room of vintage bikes in refurbished condition, including loads of pre-1970s English 3-speeds - some with original lighting! I enjoyed visiting both shops, and will be posting reviews of the Achielle, Retrovelo and Jensen bicycles soon.