My understanding is the $29 is very much at- or below-cost. The all in cost is just not that cheap for anything involving a service that has labor, a warranty, etc. Not only is labor expensive, there's a chance that the customer's phone will be damaged in some way which they'd be on the hook to replace it, and it still costs money to ship to/from depot, operate the store where customers can drop it off, etc. Part cost /= total cost.

Also, a $7 battery from China is a gamble especially for something heavily used and physically next to your body a lot of the time. I'm sure you'd get a battery that had the same physical size and stated spec, but I'd be skeptical it'd have gone through the same QC. You could get one from a bum batch, or a relabeled one operating out of spec. You just don't know.