Running into Trouble: JD Sports investigated for worsening their customers’ shopping experience
September 30, 2019
2 min read
What's going on here?
JD Sports has acquired Footasylum for £90 million. The Competition and Market Authority (CMA) is a government department in the UK which primarily evaluates if mergers may diminish competition among businesses. Currently, it is investigating if JD Sports’ acquisition of Footasylum will lead to a “substantial lessening of competition” in the UK.
What does this mean?
The CMA is wary of JD Sports’ acquisition of Footasylum. This concern is due to the fact that JD Sports now has the potential to monopolise the sports fashion sector through increasing prices and reducing choices for consumers.
Phase 1 of CMA’s review of the deal is complete. The CMA reported that this deal “could remove one of JD Sports’ closest competitor[s]”. As a result, JD Sports may either respond to and accommodate these concerns or proceed with the Phase 2 investigation.
Following the CMA’s findings from their Phase 1 investigation, JD Sports’ shares fell by 2% to £6.97. Despite this, Peter Cowgill, the Executive Chairman of JD Sports, believes that acquiring Footasylum benefits their business through an expanded target market.
What's the big picture effect?
In the UK, JD Sports has 400 shops with a revenue of more than £2.1 billion in 2018. Footasylum has 70 stores and generated a revenue of £200 million in 2018. Footasylum’s revenue is almost a tenth of JD Sports’, yet the CMA views both these companies as competitors. JD Sports’ revenue is comparable to retailers such as ASOS.
The CMA has become heavily involved in the retail industry. For instance, they prohibited the Sainsbury and Asda merger due to the possibility that they would reduce choices and deteriorate the quality of goods in the supermarket sector. However, the CMA did not report how UK supermarkets’ revenues are affected due to German wholesalers increasing the prices of supplied goods. Similarly, the CMA has not acknowledged how Footasylum had two profit warnings in 2018. As such, rather than viewing the benefits of this deal on the wider retail industry, the CMA appears to be more concerned about consumers’ choice of products.
The CMA may not always view mergers or acquisitions as beneficial to consumers, regardless of retail analysts’ opinion. Ultimately, JD Sports will have to decide between complying with the CMA’s requests or proceeding with a Phase 2 investigation. If the Phase 2 investigation works against JD Sports, its shares risk plunging again due to investors’ lack of confidence in JD Sports’ business decisions.
Report written by Marselia Ong
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