> Despite being so massive, their retail operation makes almost no money

You misunderstand the point of retail. It's now a marketplace where they use their name recognition and (alleged) consumer friendliness to collect fees from sellers. It costs to list, it costs to do FBA, and it costs to run ads so that your products appear in search results. Amazon ads is incredibly profitable.

That's also why Prime has such a grab bag of benefits. By keeping Prime membership sticky, the overall value of that marketplace supports the fees charged to sellers.