JD Sports slams CMA over competition concerns
The chairman of JD Sports has slammed the UK’s Competition and Markets Authority (CMA), after it was told it may have to sell Footasylum.
JD Sports’ merger with Footasylum has been under scrutiny since last year over concerns it could restrict choice for customers and push up prices.
On Tuesday, the CMA said its six-month investigation found the merger “substantially lessens competition nationally”, and told JD Sports it could force it to sell the footwear business it bought for £90 million last year.
In a strongly worded statement, JD Sports’ executive chairman Peter Cowgill slammed the CMA’s "fundamentally flawed" assessment, saying it demonstrates a "complete misunderstanding’ of the UK sportswear market".
"The competitive landscape described by the CMA is one which neither I, nor any experienced sector analyst, would recognise. 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,” he said.
“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.”
JD Sports, which is one of the UK’s largest sports and casualwear retail companies, said the reality of the UK sports retail market sees multi-brand retailers competing not only with each other, but also with major online pure-players and, increasingly, with direct-to-consumer brands like Adidas and Nike.
Kate Ormrod, lead retail analyst at GlobalData, a data and analytics company, validated JD Sports’ interpretation, saying that the watchdog's understanding that Nike and Adidas will not become more competitive in the coming years was “undoubtedly incorrect given their focus on direct-to-consumer channels”.
Peter Cowgill vowed to fight the CMA. It added that Footasylum has less than 5% market share, and that it will contribute less than 2% of the group's earnings in the year to January 2020.
The retailer has until late February to suggest an alternative course, and the regulator will make a final decision by 11 May.
“It will evidently be a tall order to convince the CMA of the merger’s merits given its concerns about reduced discounting and range, and poorer service, with the impact keenly felt by the retailers’ younger shoppers, but JD Sports has committed to ploughing on,” said Kate Ormrod.
“If it is unable to get the deal past the CMA it will only serve as a hiccup in its history and not the disaster it proved to be for Sainsbury’s and CEO Mike Coupe with its axed ASDA merger. Indeed other acquisition prospects are likely to arise for JD Sports, though outside of the UK.”
The increasingly internationally-focused group expects profits to grow by at least £48 million this year, hitting the top end of analysts’ forecasts and falling in the £403 million to £434 million range.
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