Amazon and the Coming Onslaught

NEW YORK ( TheStreet) -- You may not guess it by looking at the chart, but ( AMZN) is in a tough spot.

Its disciples are fully convinced the company is able to continue growing as other stronger players in retail sit idly by and watch it happen.

Even with the incredible growth Amazon has enjoyed, the truth of the matter is that its operate on razor-thin margins, and a large portion of sales come from other smaller retailers that use Amazon as a marketing platform. (See 6 Bullish Stocks Paying Big Dividends. )

Many small companies believe as a result of Amazon collecting sales tax in more states, including just recently in California, their businesses will grow or, at a minimum, will not continue falling apart because of an uneven playing field against online merchants.

I wish these smaller companies luck because it's not enough.

People buy products online for many reasons, and sales tax is only a small part. People don't care if they pay sales tax and/or shipping charges. People are smart enough to compare the total cost of a product from a Web site to its cost at a retail store. For most products, adding in sales tax is not going to level the playing field and put pricing from bricks on par with pricing from clicks.

That said, some items are best-suited for sales in the online world, and some products are best-suited for retail stores. The differences can be seen with a couple of recent purchases my family made. ( TheStreet's Ed Ponsi has interesting thoughts on Amazon in Signs of Deterioration . You need a Real Money Pro account to read, but any serious investor should have one.)

My son Brenton needed a new bike. I looked online and quickly discounted buying online due to the assembly required. Sometimes assembly is worth it, such as when I bought an air-hockey table from Sears ( SHLD). (I posted hourly updates on Facebook ( FB) while I assembled the table at 4 a.m. on Christmas evening.)

Wal Mart ( WMT) and Target ( TGT) offer bikes for sale and they assemble them. You can't beat the deal for a $200 kid's bike. Even if Amazon moves to the point of same-day delivery, its offering of items requiring a great deal of time to assemble -- also sold inexpensively at retailers -- isn't an edge.

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