Home Business JD Sports furious after being forced to sell Footasylum

JD Sports furious after being forced to sell Footasylum

JD Sports has hit out at the UK’s competition watchdog after being forced to sell rival chain Footasylum.

After an investigation, the Competition and Markets Authority (CMA) ruled that the takeover could lead to a “worse deal” for customers.

But JD Sports criticised the move, calling the decision “inexplicable” and “beyond logic”.

Its chairman Peter Cowgill suggested that the CMA is in “a minority of one in reaching this conclusion”.

The CMA found that JD Sports was the closest alternative for Footasylum shoppers.

However, the retailer has argued that one of the key areas of competition it faces is from brands such as Nike and Adidas selling their goods direct to consumers online.

JD Sports’ chairman Peter Cowgill noted that the CMA had acknowledged that these direct sales were a threat to the retailer, which, he said, made the competition body’s decision puzzling.

The deal to buy Footasylum was first announced in April 2019. The latest ruling by the CMA follows an in-depth investigation after the competition watchdog first blocked the £90m takeover last year.

JD Sports appealed against a ruling by the CMA in September, saying it was “perplexed” by its decision not to include online sales to consumers by major brands.

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In an update on Thursday, the CMA found that the takeover of Footasylum would reduce competition even after taking into account the growth in online shopping.

Half of 1,300 online shoppers surveyed by the competition watchdog said that they would go to JD Sports if they were unable to purchase their usual trainers or joggers at Footasylum.

It suggested that customers would have fewer options and could face higher prices, fewer discounts, and less choice of products in-store as a result.

‘Shoppers could suffer’

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.”

It added that the rivals can continue to compete for shoppers online and as they return to the High Street.

JD Sports argued on Thursday that the CMA in fact agreed with it on several fronts. It said, for example, that the CMA had found JD Sports’ biggest competition came from international brands selling to consumers from their own websites or apps.

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JD Sports also said that it would have no incentive to raise prices or reduce deals for shoppers.

Image caption,JD Sports boss Peter Cowgill said the CMA’s decision was “inexplicable”

In a statement to investors, JD Sports said that “the decision to prohibit the acquisition defies logic”, given that Footasylum has a market share of less than 5%.

“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 [Direct to Consumer] DTC operations of the international brands themselves,” said Mr Cowgill.

“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.”

Mr Cowgill added that the decision comes after the UK High Street has been seriously damaged by coronavirus-related lockdowns and could see further closures.

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The sportswear retailer has four weeks to lodge an appeal with the Competition Appeal Tribunal following the decision.

JD said that it is studying the CMA’s new report in detail and will consider its options “carefully”.

Despite the watchdog’s decision, JD’s share price rose by more than 2% on Thursday.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said that investors appeared to have “shrugged off” the news.

“The acquisition was part of the company’s quest for dominance in the sportswear market,” she said.

“But the decision by the CMA on the grounds that keeping Footasylum within the group would lead to a lack of choice for customers, indicates just how formidable JD Sports now is as an online powerhouse.”

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