The U.K.Competition and Markets Authority (CMA) issued a new verdict on Nov. 4 confirming its conclusion that JD Sports Fashion must divest Footasylum, the chain of sports fashion stores that it bought in May 2019, as it has resulted, or may be expected to result, in “a substantial lessening of competition” in the retail supply of sports-inspired casual footwear and apparel. The CMA already blocked the takeover in May 2020, but its decision was overturned in November 2020 by the Competition Appeal Tribunal (CAT).
Calling the CMA’s attitude in the case “unprecedented,” “extreme,’ “illogical’ and “inexplicable,” JD said in a statement that it is studying the CMA’s new 11-page, 55-point report in detail and that it will “carefully consider its options accordingly.” We understand that one of the options would be to go back to the CAT with new evidence and new arguments, while minimizing investments in Footasylum pending a final decision.
The CMA said that the resale of Footasylum by JD is still the only way to address its competition concerns and protect consumers. “We strongly believe shoppers could suffer if Footasylum stopped having to compete with JD Sports. It is likely they would pay more for less choice, worse service and lower quality,” said Kip Meek, who chaired the CMA’s investigation.
To back up its argument, the CMA cited a recent survey showing that over 40 percent of Footasylum’s customers for footwear and half of its customers for apparel would go to JD Sports if they could not shop at Footasylum. Nike, Asos and Foot Locker came way behind. The CMA did not mention Sports Direct.
The CMA also said that it would have to approve the sale of Footasylum to another purchaser, but it also noted that Footasylum could thrive as an independent business as its latest annual financial results showed improved Ebitda of £29.3 million (€34.3m-$39.7m) on sales of £232 million (€272m-$314m). “The evidence we have analyzed shows that JD Sports and Footasylum are adapting well to market conditions and would continue to be profitable should the merger not go ahead,” Meek said.
JD started its public response by noting that the CMA had agreed this time with JD on several critical aspects including the fact that JD’s most important competitors in the British market are now the direct-to-consumer (DTC) operations of international brands like Nike and Adidas rather than Footasylum, which is deemed to have a market share of just 5 percent. Consequently, JD says it has no incentive to raise prices or to worsen its consumer offer, as the CMA had previously concluded.
The CAT had urged the CMA to assess the impact of the Covid pandemic on the competitive landscape, with the online channel becoming more important. In fact, the CMA’s latest survey showed that Footasylum’s competitive position had weakened since its first investigation into the case. While Footasylum had previously come out as the second-best alternative after Nike for JD Sports’ online customers, Nike, Foot Locker and Adidas have become stronger alternatives than Footasylum, the CMA’s new survey showed.
According to the CMA, however, Footasylum’s position has not weakened to such an extent that its merger with JD would not result in less competition. In its immediate reaction, JD said “it is inexplicable to JD that the CMA remains of the view that one small competitor, Footasylum, with less than 5% of the market, is not subject to the same competitive pressures and discipline from Nike and adidas DTC that affect the remaining 95%+ of the market.”
Peter Cowgill, executive chairman of JD said in a direct quote that “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.”
He added that the CMA’s decision “is deeply troubling at a time when the UK high street has been seriously damaged already and is vulnerable to further closures.”
