Gear has by far the smallest profit margin and a place cannot sustain itself on that alone, unless you are into the world-wide distrubution market, not drop in customers.
Any business, including one offering photographic services, has to make money. I remember seeing a "top 10 most overpaid professions" list that had wedding photographer on it -- true to a point, considering that the worked out hourly wage is quite high, but you don't have weddings every day!
It all has to be balanced. I am guessing that if Ritz kept its business plan as it was, reduced it's prices on gear, and reduced the profit on prints, it would have gone out of business long before this. If they kept the low prices, but changed the business model, they would have turned into a B&H or the like to stay afloat (then, chances are another world-wide distributing business would have gone under due to the added competition.)