So the leather scene started after WWII, as a machismo rejection of the current American culture and values. It became popular in the mid 1950s, with the emergence of the Satyrs MC and NYMC. Add in the Hollister riots, a film with Marlon Brando wearing a leather jacket, and you have a cultural movement.

This style doesn't actually "hit" the gay community until 1958 when Chuck Renslow opened The Gold Coast, the first gay leather bar in the US, in Chicago. Then in 1961, the first one in San Francisco opened, The Tool Box, and is frequented by a lot of gay motorcycle clubs. This is the point where you see the bars full of gay leathermen, and the culture starts expanding rapidly.

The 1970s roll around, and activists like Cynthia Slater and Pat Califia start pushing for lesbian acceptance in the community, and before 1980 Dykes on Bikes and Sanois (a lesbian MC, and a lesbian, feminists BDSM community, respectively) enters the scene. At this point there are BDSM/Leather/Biker publications everywhere, the movement has a lot of crossover with gay rights, the AIDS epidemic, women's rights, motorcycle clubs, and fetishism, all sharing this one community in common.

As far as the decline of the leather scene, specifically in the gay community, it is a combination of several factors. The initial gut punch was the AIDS outbreak, which led to many of the leather and sex clubs closing, many never to reopen, and ALL of them being raided regularly by police. The scene also lost people organically through the 80s and 90s, with the emergence of PVC and latex fetishism.. In addition to this, the internet put people's fetishism and sexuality much more in their own hands, where the leather club wasn't the only place you could get your particular rocks off. The biggest factor affecting your specific question though, I believe, is that the average gay man's interest in a scene centered around hyper masculinity and machismo has declined considerably since the 1970s. Society had decided then that homosexuals weren't "manly", so many wore leather to "reclaim" their masculinity, and displayed it for all to see. While homophobia is alive and well today, our culture has rejected, for the most part, that a man being gay makes him less of a man. A strong plurality of gay men now feel confident expressing their sexuality, the leather community is no longer the singular safe space for gays, lesbians, fetishists, bikers, and whoever else. Most leathermen/women now are over 40, with younger homosexuals and fetishists finding spaces they identify with more. So I don't think the leather scene died as much, as it gave birth to dozens of other groups and movements that represent and celebrate other people's individuality as well.

If you would like a really insightful read on this subject, The Rise and Fall of Gay Culture by Daniel Harris goes into these factors in much greater detail, and covers the rise and fall of numerous gay movements, as well as AIDS impact on these things, though it is about the entirety of gay culture, not just the leather scene. But it would be a good read for you as you are specifically interested in the decline of the culture.