You're honestly suggesting that Newcastle spend £14 million on their commercial activities? That is what they would have to be spending to be at our level of commercial activities.Your figure of £1.25m is turnover not profit, the shirts cost how much to produce, ship and most importantly display and Stock? Retail floorspace is heinously expensive, where do you think they're going to generate enough sales to create a viable return? They're already available for US shipping with zero floorspace cost.
You've made the same mistake when looking at other club revenues, they're revenues not net profits. You're not comparing like for like.
The shirt sales are a short term byproduct of fandom - this argument wasn't even arguing against the Kitbag deal. Growing our fanbase has numerous financial returns for us, as well as improving our visibility and the way that we are handled/treated in the media. There is literally zero reason to prefer a smaller fanbase to a larger one. And growing the fanbase is the job of a marketing arm.
Edit:
If shirt sales cost us money then they are priced incorrectly. Also, having 25,000 more people buying the shirt makes us more attractive for kit suppliers and shirt sponsors...I can't fathom why selling more merchandise would be considered a bad idea.