Footasylum has broken its silence on the JD Sports takeover ruling, urging the competition watchdog to “reconsider” its provisional ruling and to regard the impact that Covid-19 will have on the business.
On 11 February the Competition and Markets Authority (CMA) provisionally blocked JD Sports Fashion’s £90m purchase of rival Footasylum.
Following the second phase of its investigation, the CMA asked for JD Sports and other third parties to offer remedies to the provisional position, or it would block the takeover and force it to sell Footasylum - a decision which industry sources have referred to as a “watershed moment”.
JD Sports, Footasylum and other third party businesses have now responded to the ruling, calling for the CMA to waive through the sale “before it is too late”.
Barry Bown, executive chairman of Footasylum, said: “Prior to the merger, our business was facing significant difficulties, unable to make the necessary investments in our store estate and online operations and compete in what was, and still is, an intensely competitive environment.
“Today, even before taking account of the significant impact that Covid-19 is having on Footasylum and UK retail as a whole, our business is facing more competitive pressure than ever from the big brands’ direct to consumer offerings, to Sports Direct and its elevation strategy to online pure players who continue to gain market share in our space and may be advantaged in the current environment. It defies common sense that this investigation is still pressing ahead at a time like this.
“This investigation has been a huge distraction for our business, which has kept our operations on standstill for nearly a year now. We urgently need the CMA to reconsider its provisional position so that our customers and employees can start receiving the significant benefits, investment and support that would come from being an official part of JD Sports.”
Other industry sources responded to the provisional findings as part of the ongoing merger inquiry.
“If you have consumers or employees interests at heart you will waive this through before it is too late. Wake up it is 2020 and UK retail is dying”, a source known as “Individual A” said.
A source known as “Company C” said: “From Company C’s perspective, it is believed that there are natural synergies and efficiencies in servicing Footasylum as part of JD. Based upon Company C’s previous experience of working with JD and following their previous acquisitions of other sports retail businesses, it is our experience that they have always maintained or improved the standard of quality, range and service to the benefit of the consumer.”
Meanwhile, as part of its formal response to the provisional ruling, JD Sports has called for the CMA to consider the impact that Covid-19 would have had on Footasylum had the merger not taken place.
The company noted in the document: “The CMA notes that any assessment of Footasylum’s performance absent the Merger would need to take account of exogeneous factors such as the spread of the Covid-19 virus. This is likely to impact retailers such as Footasylum in two ways. Firstly through a decline in footfall at its stores and secondly potential supply chain issues. If, for example, a major brand has a reduction in supply available to it of key products they are likely to favour their own DTC channel ahead of retailers.
“A reduction in footfall and supply is foreseeable and would have potentially impacted Footasylum’s ability to stay within its banking covenants in the counterfactual.”
In its findings the CMA said the deal, agreed last March, could “substantially lessen” competition and leave shoppers worse off. Following the second phase of its investigation, it said the takeover could lead to fewer discounts, a lower level of service and less choice in stores and online.
However, JD Sports said it has found new evidence against the CMA’s conclusion that Sports Direct is a “weak” or “limited” competitive constraint.
JD Sports said: “The [CMA’s] suggestion that SDI’s [Sports Direct International] access to higher tier products has “almost exclusively been focused on sports rather than sports-inspired casual products” is wrong. As [the evidence shows], SDI is increasingly gaining access to the same premium sports-inspired products as the parties, including some of the parties’ best-selling footwear franchises and apparel lines.”
“The view expressed in the PFs with respect to apparel is also not reflective of the current competitive reality, in which the combined SDI/USC offering includes a wide range of sports-inspired and fashion-inspired premium brands, including Nike, Nicce, Lyle & Scott, Lacoste, Champion, Calvin Klein, Diesel and many others.”
It added: “It is noted that SDI/Frasers’ planned investment in its elevation strategy this year is equivalent to, if not greater than, Footasylum’s expected annual turnover”.
JD Sports has also said the merger would result in considerable consumer benefits.
It said the merger would stabilise the Footasylum business and ensuring the continued employment of its staff; retain critical supply of Nike and Adidas branded products; maintain and improve the “front-end” customer-facing aspects; extend to Footasylum JD Sports’ operational and digital and multichannel platform expertise; the ability to offer Footasylum brands in JD Sports’ international network (enabling return on investment to develop brands further within the UK); and improve the efficiency of Footasylum’s operations.
A final decision will be made on 11 May.