Dave-

It's often overlooked that this is actually the point of capitalism. Self-promoting "liberal market" or "supply-side" economists fight for the frictionless operation of markets, which would lead to a zero-profit price (with perfect competition). Of course, there are a lot of reasons this does not happen and will never happen, but one primary reason is that markets do not operate exactly as economic theory holds. We don't have things like "perfect" information or competition. In fact, modern capitalism as it stands in a lot of ways suppresses competition, and increasing competition is the engine that lowers price. Wal-Mart and Target are part of a retail industry that runs by oligopoly. Competition between the two (and some less influential competitors) will never be enough to create zero-profit price.

Zero-profit is a utopia indeed, but what is amazing is the same 'loss-leading' business model has now creeped into retail.

Telcos, technology companies and other bigger ticket industries have been doing this for years, but the dynamics are different. They may lose selling you a game console but make it back selling you games, printers, cars, Internet service, financial services and the list goes on. You initial purchase has a future cash-flow attached to it.

Retail is brutal on margins and in terms of future cash-flow, well it isn't called retail for nothing.
But operating on a loss-leading basis, as it appears most retailers are doing in these hard times just seems unsustainable.

I also agree there may come a time when we dont have retail stores at all or we'll have to impose online store tariffs that offset the dramatically lower overhead of online drop-ship companies

Hello Dave,
The largest retailers in the country use the leaders to get you in the store,hoping that you will purchase non-discounted items. It is a marketing ploy at it's best and worst. The problem does not lie with the large retailers though. It is the mom and pop's and the medium sized retailers that fuel the economy and holiday sales. We have seen our traffic increase tremendously the last few months and have received emails from these small businesses inquiring how to list their inventory for sale as they see a bleak holiday season. Until the economy rebounds,the small and medium retailers will continue to dwindle away,leaving the "big box" guys to fill the void.
It brings to mind a blurb from a film I saw once..."Taco Bell won the restaurant wars". It might not be verbatim but it clearly gets the message across.

JMHO

Great Article Dave. Myself, I never pay retail prices - except for grocery. Using sites such as FATWALLET and SLICKDEALS I've become addicted, and trained, to only use coupons and to only buy at extreme discounts. My "cacoon" is full of great stuff. A 42" Plasma TV sits in my living room. Paid $275 for it brand new on closeout from Sears. A 42" 1080p computer monitor (paid $275 brand new). $800 top of the line computer I bought in seperate pieces and assembled myself. $10 off $20 coupons from Petsmart feed my animals. Goods and services I routinely trade web design work with by posting ads on Craigslist. We had a flea problem. Traded extermination for a website. Needed new carpet. Traded for a website. Needed a new garage door. Traded. Needed some electrical and tiling work done - again traded.

Yes because it bring business to pretty much every business store there is in the country.

We ran a black Friday sale this year and it definitely didnt work out quite as well as we had hoped. Black Friday is definitely for scalpers. No real customers take part in Black Friday. They're more concerned with quality service over crazy discounts. :)