Great Britain’s largest sportswear retailer is under scrutiny regarding a deal it made to acquire fellow U.K. retailer, Foot Asylum, in March.
The U.K.’s Competition and Market’s Authority (CMA), an apolitical department of the U.K. government dedicated to the prevention of anti-competitive business practices, has found that the 90 million pound ($112 million) acquisition may end up creating a situation that is worse for both shoppers and the United Kingdom’s retail landscape.
“JD Sports is already by far the largest player in the growing sports fashion sector, so any deal that results in it buying up one of its closest competitors could clearly give cause for concern,” Colin Raftery, senior director at the CMA, said in a statement. “Our investigation has shown us that JD Sports and Footasylum have been competing strongly across the U.K., with a sports fashion offering that few other retailers are able to match.”
The CMA launched the inquiry in July to investigate whether the merger could have a marked effect on the level of competitiveness in a sportswear retail environment that the department described as difficult and only able to be penetrated by a small number of firms that have the brand relationships and market presence to “credibly meet the demands of sports fashion customers.”
The watchdog agency pegged the 13-year-old Foot Asylum as one of those few, pointing to its strong growth, a fleet of 70 stores in the U.K. and revenue of 200 million pounds ($249 million) in 2018. U.K. consumers spend about 5 billion pounds ($6.24 billion) on sports clothing and footwear, the agency said.
The CMA believes the acquisition has the distinct effect of gutting the retailer’s competition while adding to its own resources unfairly. JD Sports operates 400 stores in the U.K. plus another 556 Finish Line stores in the U.S. following a $558 million merger in 2018.
“We continue to believe that Footasylum would be a positive addition to the group, bringing a differentiated customer demographic and fashion-led product range that is complementary to our existing business,” Peter Cowgill, executive chairman of JD Sports Fashion, told BBC News after the committee’s findings were made public.
Additionally, separate reports have surfaced concerning an accusation of special treatment by major sportswear brands, including Nike and Adidas, toward JD Sports. In 2018, Reuters reported that the retailer “often uses exclusive products” to distinguish itself from other retailers in the space, a claim often echoed by rival retailer, Sports Direct.
“Sports Direct’s board has received legal advice that the issues identified by the CMA in its announcement regarding brand relationships specifically, are likely to be a key focus of any Phase II investigation, but are also likely to have wider market implications beyond this transaction, as they appear to highlight the power of the ‘must-have’ brands and potential market-wide practices aimed at controlling the supply and, ultimately, the pricing of their products,” the retailer wrote in a statement following the conclusion of the investigation.
JD Sports has an opportunity to respond to these allegations or face a “more in-depth” Phase II investigation.