Because they have a better price?

How can a physical store that pays rent possibly beat a website that costs $10/month to host?

Because the margin on digital goods is effectively 100%. As long as a retailer can secure a license for less than the publisher directly charges customers, they can undercut the publisher and still make a profit.

At least in theory. I'm not sure GS is making it through this decade, because it doesn't seem like there's enough volume to make that work.

The physical stores already beat that website despite offering physical discs in physical cases.

For how long ?