JD Sports' Footasylum buy blocked again, firm cries foul, cites Nike, Adidas DTC growth
JD Sports has received a blow with the UK’s Competition and Markets Authority (CMA) again provisionally blocking its acquisition of the Footasylum chain after a review of its earlier decision to not allow the deal to go through. It means it could be forced to sell the business that it bought in 2019.
The company said that the CMA has “again provisionally prohibited the group's acquisition of Footasylum Limited” but that the firm remains “committed to its transaction goal of improving Footasylum's resources, access to product and differentiated customer proposition”.
JD acquired struggling Footasylum over two years ago but its takeover was quickly followed by an in-depth CMA probe that resulted in a negative decision.
However, in a rare reversal, JD sports was able to overturn the decision to block the £90 million takeover last November.
The Competition Appeal Tribunal agreed with the company that the CMA “acted irrationally”, didn’t properly assess the likely impact of the pandemic on the market and hadn't fully understood how the ability of big-name sports brands to sell direct to consumers (DTC) online had changed the sports retail market.
The CMA has now said its latest review did take into account the pandemic impact, online shift and the big-brand DTC development, but that competition as far as price, quality, range and service levels could still suffer.
JD continues to criticise the CMA’s decision and said it’s “indisputable [that] by causing a structural shift in favour of online shopping, the Covid-19 impact has empowered and accelerated Nike's and Adidas's DTC strategies”.
As evidence for this, it said that pre-pandemic, DTC was less than a third of total sales for Nike and is now 40%. For Adidas, DTC was around a third of the total and is now over 40% with a target of 50% within a few years.
It also said that while DTC has expanded so strongly, the CMA now “correctly concludes” that “the constraint by Footasylum on JD Sports to be only moderate, at best”.
The company added that it “finds it surprising that these key facts have changed so substantially but the CMA's conclusion has not” and it “struggles to understand how the merger could result in a ‘substantial lessening of competition’ in a market which is increasingly being shaped by the brands' DTC strategies”.
As mentioned earlier, the CMA’s decision is currently provisional and the full report is due next month. For the next few weeks, JD will “continue to make our case strongly to the CMA”.
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