JD Sports could be forced to sell Footasylum after the UK’s competition regulator again ruled that the takeover would result in a worse deal for sportswear shoppers – even after the shift online during the pandemic.
JD Sports agreed to buy Footasylum in March 2019 for £90m but it has been a tortuous process since then, with the Competition and Markets Authority repeatedly trying to block it.
The CMA has previously tried to stop the merger, but its initial judgment was sent back in November 2020 by the competition appeal tribunal, which found that the regulator had acted “irrationally”. A key aspect was the CMA’s failure to assess the changes wrought by the pandemic, such as the increasing number of shoppers buying directly from manufacturers online.
In its latest provisional findings, the CMA noted that the pandemic had changed shopping habits, pointing to the growing influence of big brands such as Nike and Adidas selling direct to consumers online.
However, it said competition on price, quality, range and service levels on footwear and clothing could still be reduced as a result of the deal, and that high street revenues had bounced back since the easing of coronavirus restrictions.
The two retailers shared deep connections before the merger. John Wardle and David Makin founded the first JD Sports shop together in Mossley, Lancashire, in 1981. They left the listed company after 20 years in 2005, and Makin tried to repeat the trick with Footasylum. Wardle rejoined Makin in 2008 and rose to chief executive and then chairman before leaving in 2018.
JD Sports has grown into one of the UK’s most valuable retailers, with a market value of £10.7bn, earning it a spot in the FTSE 100 index. Both companies would continue to be profitable as separate retailers, the CMA said. “JD Sports was – and continues to be – a particularly close competitor to Footasylum,” the CMA said.
Kip Meek, the chair of the CMA group conducting this investigation, said: “Since our original inquiry, we have gathered a significant amount of additional evidence, including on the impact of coronavirus, and we still have concerns about JD Sports’ takeover of Footasylum.
“This deal would see Footasylum bought by its closest competitor and, as a result, shoppers could face higher prices, less choice and a worse shopping experience overall.”
In a statement to the stock market, Peter Cowgill, JD Sports’s executive chairman, said the CMA should “reconsider its position before making its final determination”, adding that he believed the merger would improve the quality, range and choice of products for consumers. He did not address the possibility of higher prices.
“We have made compelling submissions on the committed positioning of the global brands towards direct to consumer and the consequent impact on an extremely competitive marketplace,” he said.
“I am perplexed and again disappointed that these have been rejected. I am not sure what further evidence the CMA needs to appreciate the extent of this dynamic change which has been substantially accelerated by Covid-19.”
JD Sports will have the opportunity to respond to the CMA, with a final decision due around October. It can then appeal once more to the competition appeal tribunal if the CMA confirms its findings.
