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Amazon's 'Achilles heel has emerged:' Volition Capital managing partner

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Disappointing Q2 revenue reports and Q3 forecasts for Amazon (AMZN) may be symptomatic of a larger weakness, Volition Capital Managing Partner Larry Cheng said in an interview with Yahoo Finance Live.

“[Amazon will] be dominant in the future,” Cheng said. “However, I do think during this period their Achilles heel has emerged, and it's the strength and the weakness being the same thing for Amazon. Their strength is that they are 'the everything store.' Their weakness is that they are 'the everything store,' and manufacturers have proliferated products into Amazon, which is confusing the consumer experience.”

As individual manufacturers have created their own spaces in the e-commerce industry, Amazon’s market share as a collection of products from these companies has been threatened. This concern accounts for some of the disappointing Q2 results.

“Q2 was a perfect storm of headwinds for Amazon and the broader e-commerce industry as a whole,” Cheng said. “Obviously, the opening up of the economy helped physical retailers, maybe not so much online retailers, but there were other issues as well. Ad rates soared in the quarter.”

Photo by: STRF/STAR MAX/IPx 2021 7/30/21 Amazon packages out for delivery in Manhattan.
Photo by: STRF/STAR MAX/IPx 2021 7/30/21 Amazon packages out for delivery in Manhattan.

Ad prices have grown anywhere from 50%-100% for Amazon in Q2, Cheng said, while some portions of the e-commerce space have been taken up by omnichannel incumbents like Walmart and Target.

Though the traditionally brick-and-mortar stores gained some ground over Amazon in Q2, it’s important to realize that the shift from offline to online commerce is well on the way and imminent in the long-term, Cheng said. What is less clear, is whether Amazon will retain its dominance in the sector or whether other competitors will chip away at its market share.

“The question is, who wins in the e-commerce shift? Obviously, Amazon is dominant today,” Cheng said. “Target, Walmart, others are growing in their e-commerce share in the tens of billions of dollars of online sales, and then you have a number of pure play e-commerce emerging players like Chewy (CHWY) in the pet food space and Wayfair (W) in the furniture space and many others that are growing quite aggressively as well. So I think you see the playing field of e-commerce becoming much more competitive.”

Yahoo Finance
Yahoo Finance

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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