Amazon briefly crossed the $1 trillion market capitalization threshold earlier this month. It’s the second US company to do so this year, following Apple in August. This milestone has generated a lot of headlines, and apparently some angst – ‘Apple’s $1 Trillion Milestone Reflects Rise of Powerful Megacompanies’, read the New York Times.

This isn’t really the first time we’ve been here, though. Saudi Aramco, the state-owned oil company, is currently the most valuable company in the world, valued at about 50% more than Apple. Looking back in history, some of the largest have also been oil companies. In 2007, PetroChina was briefly worth $1.7 trillion in today’s dollars, before the oil price tumbled. Standard Oil (now Exxon Mobil – ‘S.O.’ lends its name to Esso fuel stations) was worth $1 trillion in today’s dollars a few years before WWI, until an antitrust act forced the company to be split. The South Sea and Dutch East Indian companies were worth far more, in current dollars, once. Indeed, in inflation adjusted terms, the Dutch East India Company reached a staggering $7.9 trillion in value.

Still, even if it’s not alone, the $1 trillion market cap point is a good opportunity to take stock of Amazon. How did it get here? If one word best sums Amazon up, that word is ‘scale’. Though Amazon appears currently to be ubiquitous, its founder Jeff Bezos has over time had to take huge risks with capital in building the necessary scale to replicate department stores. As with so much in successful investing, it required keenly calibrated risk-taking to create a business with the scope and price points to make it a new essential for its customers.

Now that Amazon is ubiquitous in retail, many traditional department stores are battling for survival. In the UK, the House of Fraser chain of department stores (founded 1849) went into administration just weeks before Amazon reached the $1 trillion mark and the future of Debenhams looks ever more perilous following a string of profit warnings and attempts to secure additional funding. Such is capitalism: it takes no prisoners.

While it might seem as though Amazon’s investors (and possibly its customers) are the only beneficiaries of the current disruption in retail, this isn’t quite true. Much – much – further down the market cap scale, and generating far fewer headlines, is Burlington (founded 1972). Notionally a US department store, this is actually an off-price retailer of mainly apparel – think a smaller TJ Maxx (in the UK, ‘TK’ Maxx).

Burlington has been growing at a healthy rate and plans to expand its existing portfolio of around 550 stores by 30 per year over the coming years. As larger and more established department stores have quaked and eventually succumbed under the stresses brought about by the Amazon juggernaut, this has opened up opportunities for others. Burlington has been adept at picking up store space at favourable discounts and has also been able to put pressure on the suppliers of traditional department stores. The company has been able to soak up the resulting discounted inventory, and in turn the range and price points it has been able to access have driven traffic to its stores. The result is rising inventory turnover (the amount of times inventory is sold in a year and a key component of retail profitability); rising margins; and a solid growth model which is truly an outlier in retail.

This solid growth model, which is geared into the robust US economy and soaring consumer confidence has driven Burlington forward in recent times and shown that if you look hard enough and are selective, the right opportunities can be found in bricks and mortar retailing in this increasingly digital age.


Opinions and views from the Equities team at Kames Capital are not an investment recommendation, research or advice and should not be considered as such. Content discussing investment strategies and stocks is derived from and solely relates to the investment management activities of Kames Capital.

About the author

Carolyn Bell is an investment manager in the International Equities team, with responsibility for co-managing several funds. She also contributes to the idea generation process for our global equity portfolios. Carolyn joined us in 2014 after 5 years at Baillie Gifford where she worked on the North American equities desk as a generalist with additional sector coverage responsibility for technology and energy. She studied English at the University of Cambridge and has a Masters degree in Early Modern Studies from the University of Aberdeen. She has 10 years’ industry experience*.

*As at 30 June 2018.

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