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Horror as a publishing designation may be doing poorly, but I attribute that to publishers and their publicity efforts more than anything else.

There was a time in the 1980s when "the next Stephen King" was a ubiquitous phrase in publicity efforts. The simple reason for that was King's sales. He was selling phenomenally, and every publisher wanted to duplicate those sales... nothing succeeds like success, and imitation is standard operating procedure in any entertainment field.

Robin Cook found his medical thrillers shelved in horror. Mercedes Lackey's witch detective series was shelved in horror. So were dozens of other authors... usually appropriately, sometimes questionably. And most of the major publishers continued to try to develop their own stable of horror authors in an attempt to duplicate the King sales.

It worked, to a degree. It's still working today. The only differences I see is that there aren't nearly as many slots open for experimenting on new authors, and proven authors sometimes find themselves in a death spiral for sales as a book with lower figures than previous titles causes a publisher to publicize the next book less, leading to fewer sales for that title, etc.... However, I think that may be more a function of overall reading and publishing trends than anything specific to horror.

Publicity sells. If a book is out front in a store, it has a better chance to move copies than if it's sitting on a shelf, not even faced. People are more likely to purchase a book if they've heard it's going to be released, whether on radio ad, television interview or print ad.

Publishers still wish to make money. That's why most of them are publishers in the first place. If, at some point in the future, the success of an author or five leads someone to experiment with a line designated as horror and the secondary authors in that line show significant sales bumps because of it, five will get you ten other publishers will follow suit. If, instead, labelling something as fantasy, paranormal romance or general fiction will generate bigger sales, that's how the work will be labelled and marketed. But a label for a book doesn't radically change the content, nor does its publicity campaign.