JD Sports may be forced to sell Footasylum, the sportswear chain it bought last year, after a probe by the UK competition regulator found the deal “substantially lessens competition”.
The Competition and Markets Authority said on Tuesday that an in-depth investigation into the £90m deal provisionally found it either had or would reduce competition in the markets for both sports-inspired clothing and footwear.
“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 CMA’s independent inquiry group, which led the probe.
“This could particularly affect younger customers and students, who shop in JD Sports and Footasylum.”
The watchdog said that blocking the deal by requiring JD Sports to sell Footasylum in its entirety “may be the only way of addressing these competition concerns”.
It said that it did not believe a partial sale of the business or “behavioural remedies” which would regulate the businesses conduct would deal with its concerns. But it said it would consider “any other practicable remedies”.
JD Sports’ executive chairman, Peter Cowgill, rejected the CMA’s findings as “fundamentally flawed” and said they demonstrate “a complete misunderstanding of our market to an alarming extent”.
He said they specifically did not take into account the growing role of direct to consumer operations of major international brands.
“The competitive landscape described by the CMA is one which neither I, nor any experienced sector analyst, would recognise,” he added. “Just take a walk down any major UK high street or search for Nike or Adidas trainers on Google and you can see for yourself how competitive this marketplace really is.”
Analysts at Peel Hunt said the explanation from the CMA was “puzzling”.
“The CMA has opined that the Footasylum deal may not be in consumers’ best interests and is moving to block it,” said Jonathan Pritchard. “This is a very small part of the JD machine but the explanation from the CMA is puzzling. It suggests JD would reduce range/service quality, odd when improving such factors has been its secret sauce.”
The competition regulator began looking at the JD Sports/Footasylum deal after it completed last July, when the watchdog said there was a risk that the closest competitor to both shops had been removed by dint of the tie-up.
JD Sports has until March 3 to give its views on the findings. The CMA will make its final decision on May 11, at which point the parties could choose to appeal.
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