Why JD Sports May Be Forced to Sell Footasylum

U.K. retail giant JD Sports is in the crosshairs of the country’s competition watchdog for its 2019 acquisition of the struggling shoe chain Footasylum.

The U.K. Competition and Markets Authority claims that the deal “substantially lessens competition nationally,” and it may force JD Sports to sell the business if it can’t prove otherwise.

“We’re currently concerned that shoppers could lose out after the merger, for example, through fewer discounts and less choice in stores and online,” said Kip Meek, chair of the group leading the inquiry.

He added that the size and growth of the athletic footwear market in the U.K. prompted the group’s scrutiny of the deal. “This could particularly affect younger customers and students who shop in JD Sports and Footasylum.”

JD Sports Chairman Peter Cowgill refuted these claims, calling the CMA’s findings “fundamentally flawed” and saying the provisional decision “demonstrates a complete misunderstanding of our market to an alarming extent, given its six-month review.”

Last year’s 90.1 million pound ($119.25 million) acquisition came on the heels of a year of plunging profits and traffic declines for Footasylum, and according to the CMA’s findings, the company today commands a mere 5% of market share. For JD Sports, the U.K.’s largest sports retailer, the chain represents a silver lining in the group’s overall business: In the year to January 2020, the company estimates that Footasylum will contribute less than 2% of total profits.

Beyond the size of the deal, analysts also point to the growing competition from direct-to-consumer channels, where brands like Nike and Adidas continue to invest heavily, and consumers’ ability to easily choose to shop elsewhere if retailers like JD Sports and Footasylum raise prices or skimp on service.

“The competitive landscape described by the CMA is one that neither I, nor any experienced sector analyst, would recognize,” said Cowgill. “Just take a walk down any major U.K. high street or search for Nike or Adidas trainers on Google, and you can see for yourself how competitive this marketplace really is.”

“We cannot comprehend how the CMA concludes that Nike and Adidas will not be significantly stronger competitors in the marketplace over the next few years,” he added.

The CMA has blocked the retailers from taking any actions to integrate the businesses until its final decision has been made. It has set a Feb. 25 deadline for possible remedies, and it is seeking views on its provisional findings by March 3. The new deadline for its final report on the proposed acquisition is May 11.

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