JD Sports Fashion’s takeover of rival Footasylum could “substantially lessen” competition and leave shoppers worse off, the Competition and Markets Authority (CMA) has provisionally ruled.
The watchdog said it is worried the merger could lead to fewer discounts for consumers, for example from clearance Sales and Black Friday; a lower level of service; and less choice in stores and online.
It said requiring JD Sports to sell Footasylum may be the only way of addressing its concerns.
The CMA revealed the findings following the second phase of its in-depth investigation into the acquisition of Footasylum, which was announced in March 2019. It looked at two surveys of more than 10,000 JD Sports and Footasylum customers, documents from the companies, their competitors and suppliers, and financial information from both of the merging businesses as part of the investigation.
It has asked for views on its provisional findings and will assess all 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.”
JD Sports has hit out against the provisional findings, arguing it does not reflect “the intensive and dynamic competitive reality of the UK sports retail market”.
The business added: “Large numbers of retailers selling third-party brands compete not only with each other, but also with major online pure-players and, most importantly, the increasingly powerful direct to consumer operations of the international brands themselves. The CMA has failed to recognise and accept clear evidence of the rapidly changing nature of this market, which has materially altered even during the period of the CMA’s review.”
It anticipates that Footasylum will contribute less than 2% of the group’s earnings in the year to January 2020.
Peter Cowgill, executive chairman of JD Sports Fashion, added: “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.”