JD Sports ordered to ditch Footasylum after competition watchdog finds the tie-up could hamper competition
- JD Sports acquisition of its direct rival Footasylum was announced in 2019
- But after a lengthy review the CMA has said the deal is bad for consumers
- JD boss Peter Cowgill described the order as ‘inexplicable’ and ‘deeply troubling’
Britain’s competition watchdog has ordered JD Sports to sell its former rival Footasylum after its review found the tie-up could ‘lead to a substantial reduction in competition and a worse deal’ for customers.
The Competition and Markets Authority said the acquisition, announced in April 2019, could see shoppers facing ‘higher prices, fewer discounts and less choice of products’. It added that its order ‘is the only way to address its competition concerns and protect consumers’.
JD Sports lashed out at the decision, with boss Peter Cowgill describing the CMA order as ‘inexplicable’ and ‘deeply troubling’. The retailer added that it was ‘studying the report in detail and will carefully consider its options accordingly’.
The regulator said the deal would ‘lead to a substantial reduction in competition and a worse deal’ for customers
The CMA’s decision was based on findings that show the high street fashion retailer is ‘by far and away the closest alternative for shoppers at Footasylum’.
In a CMA survey, 50 per cent of online shoppers said they would go to JD Sports if they were unable to shop at Footasylum for clothing, while 43 per cent said they would the make the switch if they could no longer buy footwear from Footasylum. T
The CMA said: ‘These figures were substantially higher than for any other retailer. Another CMA survey of in-store shoppers showed similar results.’
The competition regulator also dismissed JD Sports’ concerns about booming direct to consumer (DTC) competition from brands such as Nike and Adidas, which the CMA said would still leave Footasylum ‘in good financial health’.
With a total revenue for of £232million this year, the retailer reported underlying profits of £29.3million, up from £25.5million and £2million in the previous two years respectively.
JD said it was ‘inexplicable’ that the CMA is of the view that Footasylum, with less than 5 per cent of the market, is not ‘subject to the same competitive pressures and discipline from Nike and adidas DTC that affects the remaining 95 per cent of the market.’
JD’s executive chairman Mr Cowgill added: ‘The CMA rightly concludes that, following the acquisition of Footasylum, JD would have no incentive to raise prices or worsen its offer as its most important competitors are the DTC operations of the international brands themselves.
‘However, the CMA has then somehow concluded that the competitive threat from DTC does not extend to Footasylum and that JD would have an incentive to worsen the offer in Footasylum to the detriment of both consumers and suppliers. We would suggest that the CMA is in a minority of one in reaching this conclusion.
‘The CMA’s decision today continues to be inexplicable to anyone who understands what difference the pandemic has made to UK retail and how competition and the supply chain in our markets actually work. It is deeply troubling at a time when the UK high street has been seriously damaged already and is vulnerable to further closures.’
However, chair of the CMA inquiry group Kip Meek defended the decision, which he said will ensure the UK continues to boasts ‘a thriving sports fashion market’.
Meek added: ‘We strongly believe shoppers could suffer if Footasylum stopped having to compete with JD Sports.
‘The evidence we have analysed shows that JD Sports and Footasylum are adapting well to market conditions and would continue to be profitable should the merger not go ahead.
‘As separate, rival entities, these companies can continue to compete for shoppers online and as they return to the high street.’
Despite the decision, JD Sports shares lurched 2 per cent higher in morning trading on Thursday, bringing year-to-date gains to 35.3 per cent.
In September the CMA put to a temporary halt to the acquisition for the second time, with JD Sports commenting at the time that it was ‘perplexed’ and ‘disappointed’ by the decision.
The CMA previously opted to block the deal earlier this year but this decision was overturned by a tribunal, which forced it to reconsider.
It comes at an otherwise successful period for JD, which posted record profits in the first half of 2021 of £439.5million, compared to just £41.5million last year, even as it was hit by store closures, supply chain issues and higher administration costs.
Last month JD Sports expanded its portfolio further with the purchase of 80 per cent of Greek retailer Cosmos Sport for an undisclosed fee, expanding its presence in European markets.