Mike Ashley, the maverick boss of Sports Direct, must be jumping with joy at getting his way with his criticism of JD Sports Fashion’s acquisition of Footasylum last April, which is again being questioned by the U.K.’s Competition and Markets Authority (CMA). The CMA launched a review of the case in the autumn after JD refused to come up with remedies to allay fears that the takeover might lead to higher prices and lower service levels. In a preliminary ruling, the country’s anti-trust authority has now concluded that the transaction could result in fewer discounts and less choice for customers offline and online.
JD, which now has until Feb. 25 to present a plan that will address the CMA’s concerns, has reacted strongly. The company said the CMA’s findings are “entirely at odds with our continuing drive to provide a market-leading, best-in-class, consumer-focused experience with consistent standards.” The CMA plans to make a final decision by May 11, which may or may not lead to the divestiture of the 69-store Footasylum chain and its powerful website, which contributes 30 percent of its turnover.
Peter Cowgill, executive chairman of JD, said the CMA’s provisional conclusions from its six-month-long review are “fundamentally flawed,” demonstrating “a complete misunderstanding of our market.”
“Just take a walk down any major U.K. high street or search for Nike or Adidas trainers on Google and you can see for yourself how competitive this marketplace really is,” he continued. The CMA acknowledged that both brands will continue to grow strongly in the U.K., “predominantly online,” and JD is arguing that this should be a reason to encourage retailers to become stronger competitors of the brands themselves.
The anti-trust review is taking place while independent retailers in the U.K. have been warned by Nike that they will be cut off by next year unless they order certain minimum quantities. For his part, Ashley encouraged the CMA to focus its investigation on the relationships between the major brands and JD, indicating that their practices and the latter’s growing bargaining power could lead them to control the supply and the pricing of their products.
After surveying customers at JD and Footasylum, the CMA found that they consider the two retailers to be competing closely, with only a few other options for the purchase of the sneakers they sell. JD dismissed the survey, claiming that it asked hypothetical questions from a small sample equivalent to less than 25 percent of those who go through one of its stores in Manchester in one week.
While noting that the proposed transaction is small, as Footasylum has a market share of only 5 percent in the U.K., JD says it is expected to contribute less than 2 percent to its earnings. Cowgill concluded that the combination of the two businesses would provide significant benefits for consumers and other stakeholders, “maintaining Footasylum’s presence on the high street as the music-inspired casual retailer which it is today.”