The Competition and Markets Authority (CMA) will force JD Sports Fashion (JD.) to sell rival retailer Footasylum, after arguing that the tie-up would leave shoppers worse off.
JD Sports sealed its £86m acquisition of Footasylum in spring last year. At the time, JD Sports said that Footasylum’s products would be complementary to its range, giving it access to a slightly older demographic.
The CMA opened its investigation into the deal in May. In September, competitor Frasers Group (FRAS) highlighted “the power of the 'must-have' brands and potential market-wide practices aimed at controlling the supply and, ultimately, the pricing of their products”. JD Sports has exclusive partnerships with sportswear giants Nike and Adidas.
The watchdog has declared that the deal would lessen competition in the UK, threatening lower quality customer service and a weaker availability of discounts. Consumers view JD and Footasylum as close alternatives, according to its survey, while Footasylum store openings were judged to have impacted sales at nearby JD outlets.
The CMA’s decision takes place against a backdrop of high uncertainty for the future of high street retail, which has been ravaged by coronavirus. The UK clothing and footwear market is expected to contract by 30.1 per cent in 2020 as a result of the pandemic, according to analytics company GlobalData, with footwear forecast to be the weakest of the two sectors.
Footasylum contributed £58.7m to JD Sports’ revenues of £2.7bn for its half year to 3 August 2019, making up around 2 per cent of overall turnover. Its stores generate the bulk of its income - in its last results as an independent entity, online sales contributed just under a third of its 2018 half-year revenue. Footasylum “may not prove to be strong enough to stand on its own two feet in the future,” observed GlobalData retail analyst Pippa Stephens.
The CMA said that it had “not found evidence that the impact of coronavirus would remove its competition concerns,” but added that it was willing to give JD Sports sufficient time to dispose of Footasylum given the disruption caused by the pandemic.
The virus has driven down global merger and acquisition volumes, and disrupted ongoing takeover attempts. In April, embattled high street tailor Moss Bros (MOSB) said that Crew Clothing owner Brigadier Acquisition Company had sought to lapse an offer made in March for the company.
The CMA, meanwhile, waved through Amazon’s (US:AMZN) investment in Deliveroo in April, having opened an inquiry in December 2019. Deliveroo had told the regulator that the impact of the pandemic would see it collapse without Amazon’s backing. The regulator also cleared a £6.2bn merger between Just Eat and Takeaway.com last month.
JD Sports slammed the verdict, arguing that the watchdog “has completely dismissed any evidence which goes against their prejudged and erroneous interpretation of our market”. The retailer accused the CMA of failing to take into account the likely permanent impact of coronavirus upon the industry, to the detriment of smaller retailers. JD Sports is considering appealing the CMA’s decision.