Ed, you got it right.

OK, I am the guy that lets these companies offer you such great service.
I buy the best I can and I never seem to get to send it in for repair because it usually gets lost before it breaks.
This means I have to buy replacements often and they are able to use their profits from dealing with me to defray the cost of service to all you guys.

Well, more seriously, if you sell a great product that lasts, then you are able to give a serious guarantee and back it up 100%. Returns are likely to be very low compared to your sales if your quality is high.
Also for the cost of fixing or replacing they bought your loyalty and good will.
It is basically good business.
Just look at the advertising testimonials happening in this thread (quite justified) and count that it continues in the real world around you. If I was wondering what compass to buy I would certainly think Silva after what I read here. The same for the other products.
You can not buy this kind of advertising from any PR company.

On the other hand a garbage product would wreck you if you offered the same guarantee on it.
You would be shipping a dozen items free for every one you sold. The people repeatedly returning it would not be talking nice either.

Thanks Chris. I am sick of the flu just from talking about it so much.