JD Sports has defended its Footasylum takeover bid by claiming major sportswear brand owners, namely Nike and Adidas, set the competitive framework between retailers.
In March this year, it was announced that JD Sports would buy struggling retailer Footasylum for £90.1m. However, the potential acquisition set alarm bells ringing for the Competition and Markets Authority (CMA), which argued earlier in October that it could lead to higher prices, worse choice and poorer service for shoppers.
As a result, the watchdog referred JD Sports’ acquisition of Footasylum to a phase two investigation, which is still ongoing.
In new submissions published by the CMA, JD Sports said the takeover would “benefit” customers.
“The merger generates a number of efficiencies including the preservation of Footasylum’s existing brand supply that will, as a result, benefit consumers,” JD Sports said in a statement to the CMA. “The merger has not and cannot be expected to result in a significant lessening of competition given that the merged entity operates in dynamic, trend-driven and fiercely competitive markets in which the ‘must stock’ global brands set the competitive framework.”
The retailer also said Footaslyum is a “small rival in a weak condition”. It said competition cannot be lessened because the two parties have quite different “sweet spots” in their brand and own-label representation.
It described JD Sports as a mainstream sports heritage brand, while Footasylum’s own-label fashion focus is on “the urban male”.
Meanwhile, JD Sports said ”the commercial and competitive reality” is that ”brands set the competitive framework, especially in footwear”.
“The characteristics of this sector are unlike other retail sectors, in that JD Sports (and Footasylum) are constrained by the major brand owners (specifically Nike and Adidas), on which each is dependent. The major brand owners not only constrain horizontally as JD Sports’ fastest-growing direct competitors at the retail level, but also substantially influence [one] the structure of the retail market via their selective distribution models; and [two] individual retailers’ setting of price, quality, range or service within it.”
However, JD Sports admitted that it is a global strategic partner of Nike and Adidas, and “receives treatment from the brands which is consistent with its position within the brands’ selective distribution hierarchies”. The retailer said it obtains a range of “JD Exclusives” from the brands.
Drapers investigated the dominance of Nike and Adidas in the sportswear industry earlier this month, as they both shift toward direct-to-consumer strategies.
The competition watchdog will reveal the conclusion of its probe by 16 March next year.
Drapers has contacted Nike, Adidas and the CMA for comment. However, Drapers understands the CMA does not comment on ongoing investigations.