On Wednesday, the U.K.’s Competition and Markets Authority (CMA) handed down its decision to block the merger between JD Sports and Footasylum, a decision JD Sports said fails to take into account the lasting impact of the coronavirus pandemic.
A merger between the larger JD Sports and smaller competitor Footasylum would result in fewer discounts or lower quality customer service, the CMA said in a statement, leading to a “substantial lessening of competition” in the U.K.
The watchdog organization admitted challenges related to the virus will continue to affect trading conditions but said there was not sufficient evidence the continuing uncertainty would negate competition concerns.
“This decision comes at a very difficult time for retailers and we have been careful to consider the effects of coronavirus,” CMA inquiry group chair Kip Meek said. “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.”
The CMA will allow JD Sports sufficient time to sell Footasylum given the current conditions.
JD Sports claimed the CMA’s decision “materially fails” to consider the lasting and “likely permanent” effects of the coronavirus pandemic on U.K. retail.
In its statement, the sports apparel retailer suggested Footasylum would not have been able to survive the current market conditions on its own, citing an Office for National Statistics report that showed a 35 percent decrease in U.K. apparel sales volume in March.
“This downward trend is especially permanent for Footasylum, which was in a weakened ﬁnancial position at the beginning of the acquisition, is heavily dependent on sales from its physical store estate, and which, without JD’s ﬁnancial backing, may well have been forced to exit the market, joining the long list of retail casualties we’ve already seen during the current crisis,” the company said.
Market conditions have significantly changed since the launch of the CMA investigation 12 months ago, the statement claims, and JD Sports said elevated propositions from competitors and increased DTC growth by both Adidas and Nike should remove any concerns regarding competition.
According to JD Sports, the CMA failed to properly understand trends and instead relied on a prejudiced and “erroneous” interpretation of the market.
“When the CMA published its provisional ﬁndings in February, we said at then that they demonstrated a complete misunderstanding of our market to an alarming extent,” JD Sports executive chairman Peter Cowgill said. “Today, and equally frustratingly, in the midst of a global pandemic and with the U.K. high street in a state of complete lockdown, the CMA’s ﬁnal decision is even more absurd.”