The Competition and Markets Authority has blocked JD Sports’ proposed purchase of Footasylum despite uncertainty in the footwear and fashion sector bought on by the coronavirus.
Following a phase two investigation, the CMA found the merger would “lead to a substantial lessening of competition nationally” in the footwear sector and would leave customers with “fewer discounts or receiving lower quality customer service”.
While the watchdog noted that the coronavirus has led to retailers “facing uncertain and challenging trading conditions” it found no evidence the impact of the virus removed its competition concerns.
As part of its ruling, the CMA said it conducted two surveys with more than 10,000 of the two companies consumers and found more than two-thirds of Footasylum customers said they would shop at JD Sports if they could no longer purchase items from the former retailer.
Read more: Is the CMA killing retail?
The watchdog also said that while JD Sports is larger than Footasylum, the latter still has millions of customers in “a fast-growing sector” and the loss of competition between the two was therefore important.
Chair of the CMA inquiry group Kip Meek said: “Our investigation analysed a large body of evidence that shows JD Sports and Footasylum are close competitors. This deal would mean the removal of a direct competitor from the market, leaving customers worse off. Based on the evidence we have seen, blocking the deal is the only way to ensure they are protected.
“This decision comes at a very difficult time for retailers and we have been careful to consider the effects of coronavirus. However, we need to make sure we think about the impact of this merger on shoppers, both now and in the foreseeable future and we do not see the effects of the current crisis changing the competitive dynamics in a way that diminishes the substantial lessening of competition which we need to remedy.
“We never take decisions to block mergers lightly, but in this case, the evidence has shown it is necessary for JD Sports to sell Footasylum so that they can continue to compete against each other as independent businesses.”
JD Sports ‘fundamentally disagrees’ with finding
JD Sports put out a stinging rebuke to the CMA finding, which boss Peter Cowgill said was based on ”inaccurate and outdated analysis of the UK sports retail competitive landscape”.
The retailer said that even without the seismic effects being wrought on the wider fashion sector by the coronavirus crisis, the overall retail market is ”materially different today than when the CMA instigated its review 12 months ago”. The watchdog’s conclusion, said JD Sports, was even harder to understand given the effects of the virus.
Cowgill said: “Since the CMA launched its review 12 months ago, the competitive landscape in which we operate has changed beyond recognition. Further, since the outbreak of Covid-19, competition has not lessened; it has become even more intense as the consumer transition to online has accelerated at a meteoric rate. We are astounded that the CMA has failed to recognise that this isn’t just a short-term blip, but rather a long-term societal and behavioural change in how consumers shop.
“At no time during this process has the CMA considered deviating from its erroneous view of competition in our market, which was determined at a premature stage, and heavily influenced by a snapshot customer survey and the picture presented by a self-interested third party. Given the injustice of the CMA’s decision and its disregard for irrefutable evidence of real-world competition, we will now carefully consider whether to formally challenge today’s decision in the Competition Appeal Tribunal.”