The Competition and Markets Authority (CMA) has provisionally found that the proposed £90m takeover of Footasylum by sportswear rival JD Sports “could leave shoppers worse off, both in-store and online”.
After its initial Phase 1 review raised potential competition concerns, the CMA’s in-depth Phase 2 investigation has provisionally found that the deal “substantially lessens competition nationally”.
The CMA said it is concerned that the loss of competition from the merger could mean that shoppers see fewer discounts from clearance sales and Black Friday promotions, or receive a lower quality of customer service. It said it is also “worried” it will lead to less choice in stores and online.
While JD Sports is the largest retailer in this market with around 375 stores nationally and Footasylum is smaller, the CMA has provisionally decided the two brands “compete closely”, and surveyed customers indicated that there are only a “small number” of other retailers that they would consider buying from.
In reaching this provisional decision, the CMA looked at what it called a “large volume of evidence”. This included data from two surveys of more than 10,000 JD Sports and Footasylum customers, documents from the companies, their competitors and suppliers and financial information from both of the merging businesses.
Kip Meek, chair of the independent inquiry group leading the investigation, said: “This is a large and growing market in the UK, so it is important that the CMA carefully scrutinises a deal between two key rival businesses.
“We’re currently concerned that shoppers could lose out after the merger, for example through fewer discounts and less choice in stores and online. This could particularly affect younger customers and students, who shop in JD Sports and Footasylum.”
Peter Cowgill, executive chairman of JD Sports has called the provisional decision “fundamentally flawed” and has said the watchdog has based its decision on findings from a “small sample”.
“The CMA’s provisional findings do not reflect the objective evidence, with excessive weight being placed on surveys asking hypothetical questions of a small sample of selected customers equivalent to less than 25% of the footfall of one JD store in Manchester for one week, rather than assessing the reality of how consumers actually shop on a national scale.”
He added: “When the group made its offer in March 2019, it was our intention to support Footasylum and its employees to grow the business and increase the quality, range and choice of products available to customers.
“We remain convinced that a combination of the two businesses would provide significant long-term benefits to customers, colleagues and brand partners, while maintaining Footasylum’s presence on the high street as the music-inspired casual retailer which it is today.”
The deadline for the CMA’s final report has been extended to 11 May 2020.