IANA Physicist, but I can't imagine any physics journals feel threatened by arxiv. When someone wins a Nobel prize for work that was published exclusively through arxiv, then you might have a point.
I Am A Physicist, and researchers do use Arxiv quite often: pre-publication papers, or something that is written up and can iterated (unlike journals, Arxiv can store multiple version of the same paper). It is not peer reviewed but good for having feedback on things you are doing.
Of course, publications from the "big guns" go straight to the big journals, and their peer review is more like rubber-stamp if you have the name on your author list.
So the only difference is for the bureaucrats, who want you to show them "proper" papers to be able to move forward, the people doing the actual research only care whether your experiment and explanation is solid or not, can be published anywhere.
(And I'm totally for open journals, even more, use CC-BY on it...)
