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JD Sports Fashion CMA's review of Footasylum acquisition

JD Sports Fashion Plc (LON:JD) today provided an update following the Competition and Markets Authority’s announcement that it has competition concerns regarding the Group’s acquisition of Footasylum Limited.

The CMA’s provisional findings do not reflect the intensive and dynamic competitive reality of the UK sports retail market today, where a large number of retailers selling third-party brands compete not only with each other, but also with major online pure-players and, most importantly, the increasingly powerful direct to consumer (“DTC”) operations of the international brands themselves. The CMA has failed to recognise and accept clear evidence of the rapidly changing nature of this market, which has materially altered even during the period of the CMA’s review.

The CMA concludes, correctly, that (i) online and stores compete in “the same market“; (ii) customers use “these channels interchangeably“; (iii) online is “growing fast and a key driver of overall growth“; and (iv) the DTC offer of Nike and adidas will “continue to grow strongly in the UK, predominantly online“. Given these findings, 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. Experienced analysts in this sector simply would not recognise this conclusion.

Further, the suggestion that “there could be fewer discounts and less choice in stores and online” is entirely at odds with our continuing drive to provide a market-leading, best in class consumer focussed experience with consistent standards across our global territories.

We feel that, in its findings, the CMA has lost sight of its objective to protect consumer interests. We still firmly believe that bringing Footasylum into the Group will deliver significant benefits for both consumers and the UK high street, and we will continue to make our case strongly to the CMA in the coming weeks.

The CMA itself recognises that Footasylum has a less than 5% market share. Therefore, it is clear that this transaction is small, both in the context of our increasingly international focussed Group and the extremely crowded marketplace in which we operate.

We anticipate that Footasylum will contribute less than 2% of the Group’s earnings in the year to January 2020 which, after a robust post-Christmas sales period in our key overseas markets, are now expected to be at least equal to the top end of current market expectations, which after adjusting for IFRS 16, range from £403 million to £434 million.

Peter Cowgill, Executive Chairman of JD Sports Fashion, commented:

“The CMA’s provisional decision is fundamentally flawed and demonstrates a complete misunderstanding of our market to an alarming extent, given its six-month review.

“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.

“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.

“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.

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