How does a company reduce prices to a level lower than their operating expenses and still make money?

Is the question that Chris Hoyt asks writing for Reveries.
Hoyt answers his own question:

Well, this is exactly the problem that most supermarkets face today. Wal-Mart's 2004 average gross margin at 22.5 percent is now lower than Kroger's, Albertsons', and Safeway's operating expenses which were 22.7 percent, 24.9 percent and 26.0 percent respectively. Apparently, these folks aren't looking at these numbers because every pronouncement we hear from these supermarkets (or so it seems) is fixated on continuing to lower prices to compete.

He goes onto say

This constant fixation on lowering prices is simply killing supermarkets with virtually no meaningful results in return…While we recognize and acknowledge that supermarkets are physically constrained and perhaps even locked-in by such things as store size, layout, format, aisle spreads, shelving and case space, we do have difficulty understanding why companies with the size, assets and cash flow of Kroger, Albertsons and Safeway cannot package and market themselves to appeal to one or more of the plethora of changing consumer needs emerging at present… Our question: If winning on price is unachievable, how about winning on consumer relevance?

And then Hoyt lists some very interesting stats on the opportunities staring retailers in the face.
Hoyts analysis is focused on the US. Which has its own economic and cultural dynamics. However, it does seem, apart from Tesco's that retailers here in the UK are struggling to embrace the new opportunities, proscribed by the new digital economics.
Locked into a time warp, they don't seem to understand that all media channels open to them offer a compeletely different way to reach their audience. Offering valuable services which ultimately would create greater gravitational pull to their retail outlets. Whether that be; newsagents like WH Smiths, garden centres, baby shops, automotive dealerships, general stores, or fashion outlets for example.
Reading Hoyts post I am reminded of the very funny Harry Hill sketch. Who tells the story of his father who set up a company called "Beds," his competitor across the road then called his shop "Beds, Beds." In response the other owner renamed his shop "Beds, Beds, Beds." You can see where this is going.
Thinking back to Martin Jacques thoughts on marketing and society one wonders why it is that retail seems to be looking backwards?When it could offer so much more, more to its customers and ultimately more to its shareholders. Price is not normally a competitive tool, unless you are IKEA and the entire philosophy is premised on that busness model.
As Neil Young said:

Its easy to get stuck in the past when you are trying to make a good thing last

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