​Is Amazon crafting Etsy's demise?

The cozy world of crafting is about to get a whole lot more cantankerous.

Etsy (ETSY), which over the last decade has had a virtual lock on selling homespun products, suddenly faces a powerful new foe: Amazon.com (AMZN). The e-commerce giant this week unveiled details of its new Handmade online store. As Wedbush Securities analyst Gil Luria wrote in a Thursday report, Amazon is preparing to "out-Etsy Etsy," posing a mighty competitive threat to the Brooklyn-based company.

Amazon is planting an artisanal stake in the battle: Its new Handmade site will only list items that are "made entirely by hand, hand-altered, or hand assembled," according to its new site. That's aimed at luring sellers from Etsy who have been vocal in expressing frustration by what they see as a proliferation of manufactured items, as well as counterfeit goods, on Etsy's site, Luria said in an interview. Amazon is also offering a bigger customer base, better terms and a bigger marketing push.

"It's a game changer," said Luria, who has an "underperform" rating on Etsy stock and reduced his price target to $9 per share from $13. "Now the frustrated sellers have a place to go."

The problem for Etsy started two years ago, when it redefined what it deemed qualified as "handmade." Originally, it restricted sales of items that were manufactured in factories, but in 2013 it tweaked its guidelines to allow sellers to hire staff and hire third-party services to handle order fulfillment. Production was also allowed by "manufacturing partners."

"Until a couple years ago, Etsy was a very unique experience for sellers," Luria noted. "It was a community. Then a couple years ago, the company took a big turn and allowed manufactured items. Sellers are very, very frustrated with what's on the website and how sellers are handled."

Unfortunately for disillusioned crafters, there weren't many other options -- until Amazon announced it would open Handmade. Luria said he believes many sellers will shift over to Handmade, and with them will come buyers.

Etsy didn't immediately return a request for comment. Its shares have declined by more than 50 percent since its initial stock offering in April.

"A vast majority of Etsy customers are also Amazon customers," he said. "It's not hard to imagine they'll move there as well."

Amazon will have a 12 percent take rate, which includes payment, marketing and shipping, which Luria said would be lower for many Etsy sellers. Amazon also has 250 million buyers, compared with 20 million for Etsy.

Luria noted, "Etsy has an existential question to ask themselves right now. If they go down the path of more manufactured goods, they will be farther away from their original ethos, or they could take a step back to a pure vintage and handmade marketplace."