U.K.’s antitrust regulator has provisionally barred the acquisition of Footasylum Ltd. by JD Sports Fashion Plc.
The latest ruling from the Competition and Markets Authority (CMA) found that a prior CMA review failed to inquire into the combined entities increased competitive threat to the direct-to-consumer (DTC) operations of Nike and Adidas in the aftermath of the Covid-19 pandemic. The antitrust concern was that a merger could result in consumers facing higher prices and fewer shopping choices.
JD Sport was quick to note that before the pandemic, Nike’s DTC was less than a third of total sales and has grown to almost 40 percent for the fiscal year ended May 31, 2021. In addition, the brand has since said it has a targeted goal of 60 percent of sales from the DTC operation by 2025. For Adidas, pre-pandemic DTC sales were also about a third of total sales, which grew to over 40 percent in the last fiscal year ended Dec. 31, 2020. Adidas’ new DTC target is 50 percent of sales from the channel by 2025. In short, the pandemic has accelerated change that has benefited the big brands.
Peter Cowgill, executive chairman of JD Sports, was quick to note that he was “perplexed” that approval of the merger has been rejected.
“We have made compelling submissions on the committed positioning of the global brands towards direct to consumer and the consequent impact on an extremely competitive marketplace,” Cowgill said, adding “I am not sure what further evidence the CMA needs to appreciate the extent of this dynamic change which has been substantially accelerated by COVID-19.”
According to JD’s executive chairman, if CMA’s goal is to make markets work in the interests of consumers, businesses and the economy, then it needs to reconsider its position before making it final determination, which is due in October.
Related Stories
JD Sports took an 8.3 percent stake in Footasylum in 2019. CMA initially blocked the $123.5 million merger in May 2020. JD Sports appealed to the Competition Appeal Tribunal, which in November last year overturned the ban and remitted the matter to CMA for reconsideration. JD Sports previously said that had it not invested in its competitor, Footasylum could have found itself in bankruptcy in the wake of the Covid downturn and the closures of high street retailers.
“This transaction will simply not ‘lessen’ competition, let alone ‘substantially.’ On the contrary, clearance would enable JD to invest in Footasylum and work with its management team to increase the quality, range and choice of products available to its consumers which will bring wider benefits to a U.K. High Street decimated by a number of high-profile closures,” Cowgill said.
The British sports and fashion retailer has been on a tear acquiring companies in recent years as it builds up its empire and U.S. presence. In December, its spent $325 million to acquire Shoe Palace. And this past February, the company used a portion of its war chest to fund its $495 million purchase of DLTR, the athletic and apparel streetwear retailer in the U.S. This year also saw JD take a 60 percent stake in Polish retailer Marketing Investment Group S.A., which sells sports fashion footwear, apparel and accessories from leading brands under the Sizeer and 50 Style nameplates, and a controlling interest in Oi Polloi, a British men’s boutique based in Manchester.