UK competition authorities may rule that JD Sports Fashion has to sell Footasylum in order to ensure that the sportswear market stays competitive.
The Competition and Markets Authority (CMA) today released its provisional findings that JD Sports’ takeover of Footasylum could leave customers worse off, whether they shop in-store or online, according to provisional findings from UK competition authorities.
In the second phase of its investigation into the deal, the Competition and Markets Authority (CMA) has found that JD’s £90m acquisition of Footasylum, completed last year, would “substantially lessen competition” across the UK.
As a result of the deal, says the CMA, shoppers could see less discounting from events such as end of season sales and Black Friday promotions, and they could enjoy a lower level of customer service, and less choice in store and online. The CMA is now considering whether JD Sports should have to sell Footasylum - and will make a decision by May 11.
In the meantime, it is asking for views on possible remedies by February 25, and on its provisional findings by March 3, and will assess the evidence before making a final decision.
Kip Meek, chair of the independent inquiry group leading the investigation, said: “This is a large and growing market in the UK, so it is important that the CMA carefully scrutinises a deal between two key rival businesses.
“We’re currently concerned that shoppers could lose out after the merger, for example through fewer discounts and less choice in stores and online. This could particularly affect younger customers and students, who shop in JD Sports and Footasylum.”
The CMA says that in 2018 UK shoppers spent more than £5bn on sports clothing and footwear, and that JD Sports, with about 375 UK shops, is the largest retail brand in the growing athleisure market. It has considered surveys questioning more than 10,000 JD Sports and Footasylum customers as well as evidence from the companies, from competitors and suppliers and found that the two retailers compete for many of the same customers.
But JD Sports says that the findings do not reflect the “intensive and dynamic” competitive reality of the UK sports retail market, in which retailers selling third-party brands not only compete with each other but with online pureplays and the brands themselves. It says that it “cannot comprehend how the CMA concludes that Nike and Adidas will not be significantly stronger competitors int he marketplace over the next few years.” It also says that its strategy is all about delivering a “market-leading, best-in-class consumer focused experience” across its global markets – and that Footasylum will only account for 2% of its revenues in its current financial year, having a market share of less than 5% in the UK.
JD Sports Fashion executive chairman Peter Cowgill said: “The CMA’s provisional decision is fundamentally flawed and demonstrates a complete misunderstanding of our market to an alarming extent, given its six-month review.
"The competitive landscape described by the CMA is one which neither I, nor any experienced sector analyst, would recognise. Just take a walk down any major UK high street or search for Nike or adidas trainers on Google and you can see for yourself how competitive this marketplace really is.
”The CMA’s provisional findings do not reflect the objective evidence, with excessive weight being placed on surveys asking hypothetical questions of a small sample of selected customers equivalent to less than 25% of the footfall of one JD store in Manchester for one week, rather than assessing the reality of how consumers actually shop on a national scale.
"When the group made its offer in March 2019, it was our intention to support Footasylum and its employees to grow the business and increase the quality, range and choice of products available to customers.
"We remain convinced that a combination of the two businesses would provide significant long-term benefits to customers, colleagues and brand partners, while maintaining Footasylum’s presence on the high street as the music-inspired casual retailer which it is today.”
Commenting, Richard Lim, chief executive of retail analyst Retail Economics, said the CMA decision suggested a new “hands-on” approach to shaping the retail industry. “The sportswear industry is undergoing significant structural with the impact of online platforms, social media influencers and global brands selling directly to consumers all competing for consumers’ attention,” he said. “Shoppers have more choice than ever before through a multitude of digital, physical and social channels. The emergence of luxury ranges entering the athleisure market also makes defining sportswear all the more challenging.
“The sector is evolving at a fierce pace with competition arising for previously unimaginable channels. This will only continue to accelerate and businesses will need to embrace change and reinvent themselves to remain relevant, which is at the heart of the proposed merger.”
Image courtesy of Footasylum