New concerns over JD Sports’ Footasylum deal
In March 2019, it was announced that JD Sports was buying Footasylum for £90.1m. However, the acquisition set alarm bells ringing for the Competition and Markets Authority (CMA),
which argued in October 2019 that it could lead to higher prices, worse choice and poorer service for shoppers.
Then, on 6 May 2020 the CMA formally blocked JD Sports’ purchase of Footasylum, concluding that the transaction would lead to a “substantial lessening of competition nationally”. In
November 2020 the Competition Appeal Tribunal quashed the CMA’s decision to block the deal.
In its latest decision, the CMA has said that the merger could result in a worse deal for Footasylum shoppers throughout the UK. This means customers could find themselves facing higher prices, fewer discounts and less choice of products in store. It could also result in the merged company investing less in improvements to customer service.
As a result the authority said that requiring JD Sports to sell Footasylum, “may be the only way of addressing these competition concerns”.
Kip Meek, CMA inquiry chair, said: “Since our original inquiry, we have gathered a significant amount of additional evidence, including on the impact of coronavirus, and we still have concerns about JD Sports’ takeover of Footasylum. This deal would see Footasylum bought by its closest competitor and, as a result, shoppers could face higher prices, less choice and a worse shopping experience overall.
“While many stores were closed during lockdown, online sales in this market have been stronger than ever, and revenue from in-store sales is rebounding as people return to the high street.
“JD Sports, Footasylum and others in the sector now have the opportunity to give us their views – on both our provisional decision and our suggested remedy.”
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In response, JD Sports said that the CMA has not considered the extent to which the direct-to-consumer (DTC) businesses of Nike and Adidas have grown during the pandemic.
It said: “One of the CMA’s primary tasks in the remittal process was to consider the impact that Covid-19 has had on Nike’s and Adidas’s DTC strategies. A specific way of measuring this change is to look at the ratio of the brands’ DTC sales to the sales they make to third-party retailers on a wholesale basis.”
Read more: Where will JD Sports’ acquisition trail end?
JD Sports said the pandemic has prompted a “structural shift in favour of online shopping, [which has] has empowered and accelerated Nike’s and Adidas’s DTC strategies”: “In these circumstances, [it] struggles to understand how the merger could result in a ‘substantial lessening of competition’ in a market that is increasingly being shaped by the brands’ DTC strategies.
“In particular, the group does not understand how the CMA can so clearly agree with JD that it would have no incentive to deteriorate the price, quality, range and service offered at JD but then still find, despite all the market dynamics, that JD would find it commercially rational to worsen the Footasylum retail offer for a period of two years or more.”
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Peter Cowgill, executive chairman of JD Sports Fashion, said: “We have made compelling submissions on the committed positioning of the global brands towards DTC and the consequent impact on an extremely competitive marketplace. I am perplexed and again disappointed that these have been rejected.
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“I am not sure what further evidence the CMA needs to appreciate the extent of this dynamic change that has been substantially accelerated by Covid-19.
“If the CMA’s mission is indeed to “make markets work well in the interests of consumers, businesses and the economy”, then I urge the CMA to reconsider its position before making its final determination. This transaction will simply not “lessen” competition, let alone “substantially”.
“On the contrary, clearance would enable JD to invest in Footasylum and work with its management team to increase the quality, range and choice of products available to its consumers, which will bring wider benefits to a UK high street decimated by high-profile closures.”
Foot Asylum JD Sports mergers and acquisitions sportswear
2021-09-02
Caroline Wadham
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