The UK’s Competition and Markets Authority (CMA) said on Thursday it has instructed Bury-based FTSE 100 retailer JD Sports Fashion Plc to sell Rochdale-based Footasylum after a second investigation “identified competition concerns.”
JD Sports said “the decision to prohibit the acquisition defies logic.”
The Bury firm said it is studying the report in detail and “will carefully consider its options accordingly.”
JD Sports executive chairman Peter Cowgill said: “The CMA rightly concludes that, following the acquisition of Footasylum, JD would have no incentive to raise prices or worsen its offer as its most important competitors are the DTC operations of the international brands themselves.
“However, the CMA has then somehow concluded that the competitive threat from DTC does not extend to Footasylum and that JD would have an incentive to worsen the offer in Footasylum to the detriment of both consumers and suppliers.
“We would suggest that the CMA is in a minority of one in reaching this conclusion.
“Overall, the CMA’s decision today continues to be inexplicable to anyone who understands what difference the pandemic has made to UK retail and how competition and the supply chain in our markets actually work.
“It is deeply troubling at a time when the UK high street has been seriously damaged already and is vulnerable to further closures.”
The CMA said: “The Competition and Markets Authority (CMA) has found that the takeover could lead to a substantial reduction in competition and a worse deal for Footasylum’s customers.
“Over the course of its inquiry, the CMA found that JD Sports is by far and away the closest alternative for shoppers at Footasylum.
“The CMA expects this will continue to be the case even after taking into account the continued growth in online shopping, including on the websites and apps of brands such as Nike and adidas.
“Fifty per cent of online shoppers surveyed by the CMA said they would go to JD Sports if they were unable to shop at Footasylum for clothing, while 43% said they would the make the switch if they could no longer buy footwear from Footasylum.
“These figures were substantially higher than for any other retailer. Another CMA survey of in-store shoppers showed similar results.”
The CMA said it also found that, despite increased competition from firms like Nike and adidas, and the impact of Covid-19, Footasylum “would remain in good financial health.”
“With a total revenue for 2020/21 of £232 million, the retailer (Footasylum) reported underlying profits (EBITDA) of £29.3 million for the year, up from £25.5 million in 2019/20 and £2m in 2018/19,” said the CMA.
“The merger means that Footasylum would no longer face competition from JD Sports so customers would have fewer options and could face higher prices, fewer discounts, and less choice of products in-store.
“The CMA’s view is that requiring JD Sports to sell Footasylum is the only way to address its competition concerns and protect consumers.
“It will oversee the sale and approve the purchaser, in order to ensure that Footasylum will be run as a fully independent competitor.”
Footasylum was acquired by JD Sports in a deal valued at up to £90.1 million in 2019.
Kip Meek, chair of the CMA inquiry group, said: “The UK boasts a thriving sports fashion market and today’s decision reflects our commitment to keeping it that way.
“We strongly believe shoppers could suffer if Footasylum stopped having to compete with JD Sports. It is likely they would pay more for less choice, worse service and lower quality.
“The pandemic may have altered the way we shop but innovative businesses, driven by healthy competition, will rise to the challenge and successfully cater to changing tastes and habits.
“The evidence we have analysed shows that JD Sports and Footasylum are adapting well to market conditions and would continue to be profitable should the merger not go ahead.
“As separate, rival entities, these companies can continue to compete for shoppers online and as they return to the high street.”
Russ Mould, Investment Director at AJ Bell, said: ““Peter Cowgill’s blood is boiling as JD Sports is being forced to sell trainers shop Footasylum.
“He has been fighting the competition authority for some time, arguing that even after absorbing Footasylum into JD there still is plenty of competition in this sector, particularly from shoe manufacturers which are increasingly selling direct to consumers.
“But the CMA is not having it and insists that consumers could be worse off if JD was permitted to keep the business.
“The shoe market is well served by a range of retailers in the UK, so it does seem odd that the CMA is being so stubborn.
“Quite often in these situations, the company being investigated would be forced to sell some of the acquired shops in certain geographical locations, but not necessarily the entire business.
“JD Sports is unlikely to let the CMA have the final word and it now seems that Cowgill is on a personal mission to emerge victorious.
“It’s now a fight of principles and not letting the CMA set the precedent for future cases of a similar ilk.
“Footasylum is not really a material part of JD and was an opportunistic purchase in the first place, with the suitor only paying £90 million two years ago.
“To put that in some context, JD is guiding to make at least £750 million pre-tax profit this year from its whole business.
“Cowgill wants fair treatment in this fight and is unlikely to stand down until, given that the statement says JD is studying its options.”