JD Sports slams CMA ruling on Footasylum deal
Written by Hannah McGrath
JD Sports has slammed the Competition and Markets Authority (CMA) after it warned that it could block the planned takeover of sportwear retailer Footasylum.
The competition regulator said its investigation into the £90 million acquisition had provisionally found that it could result in a “substantial lessening of competition in the retail supply of sports-inspired casual footwear” across both in-store and online channels in the UK.
The deal could result in fewer discounts and less choice, the regulator said.
The CMA, which has powers to block takeovers which threaten to damage competition and consumer choice, stressed the decision was not final and said it was open to take submissions from interested parties by 3 March.
However, JD Sports launched a searing response, criticising the regulator for failing to “recognise and accept clear evidence of the rapidly changing nature of this market, which has materially altered”.
Peter Cowgill, executive chairman of JD Sports, 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.”
The CMA launched its investigation into the planned takeover in May 2019. It has interviewed more than 10,000 customers of JD Sports and Footasylum as part of its investigations, along with a range of other market-based evidence.
JD Sports has 375 stores across the UK, as well as online operations, while Footasylum has grown to operate more than 70 stores in addition to its e-commerce presence.
The sportswear sector is estimated to be worth around £5.5 billion in the UK and is forecast to grow by around 20 per cent by 2023.
The CMA’s summary provisional findings concluded that: “JD Sports provides a stronger constraint on Footasylum than vice versa – where businesses are close competitors in a market, as the parties are, the competition lost from the merger is more significant than if they competed less closely.”
Kate Ormrod, lead retail analyst at GlobalData, commented: “Today’s provisional findings from the CMA on the merger of JD Sports and Footasylum emphasise its tough stance on consolidation in the retail sector – all but putting the kibosh on the sportswear retailers’ deal.
“It will evidently be a tall order to convince the CMA of the merger’s merits given its concerns about reduced discounting and range, and poorer service, with the impact keenly felt by the retailers’ younger shoppers, but JD Sports has committed to ploughing on.
"If it is unable to get the deal past the CMA it will only serve as a hiccup in its history and not the disaster it proved to be for Sainsbury’s and CEO Mike Coupe with its axed ASDA merger," she continued, adding: "Indeed other acquisition prospects are likely to arise for JD Sports, though outside of the UK.”