LONDON (ShareCast) - (Sharecast News) - The Competition and Markets Authority has ordered JD Sports to sell Footasylum after an in-depth investigation identified competition concerns.
JD Sports bought smaller rival Footasylum in 2019 for £90m. However, the CMA said on Thursday that over the course of its investigation, it 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," it said.

The watchdog said 50% of online shoppers it surveyed said they would go to JD 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," it added.

It also found that despite increased competition from the likes of Nike and Adidas, and the impact of the pandemic, Footasylum "would remain in good financial health".

"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 said.

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."

JD Sports noted in a statement that this is the first time ever the CMA has decided to block or remedy a deal between competitors where it found that there will be no "substantial lessening of competition" and said the decision "defies logic".

Executive chairman Peter Cowgill said: "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."

Russ Mould, investment director at AJ Bell, said: "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 £90m two years ago. To put that in some context, JD is guiding to make at least £750m 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."

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