The UK's competition watchdog has ordered sportswear retailer JD Sports (JD.L) to abandon its takeover of shoe shop Footasylum.
In the latest episode of a long-running saga, the Competition and Markets Authority (CMA) has found that the takeover could lead to a "substantial reduction in competition and a worse deal for Footasylum’s customers."
The regulator said that JD Sports is by far and away the closest alternative for shoppers at Footasylum and that even with the evolution of online shopping it thinks this will continue to be the case.
Footasylum was bought by JD Sports in a deal announced in April 2019. The CMA blocked the £90m ($123mtn) takeover last year but reversed its decision following an appeal from the sportswear seller. It then blocked it for a second time in September 2021.
The regulator had been criticised by the competition appeals tribunal that it failed to take into account the impact of COVID into account, as customer priorities shift to online.
JD said the latest ruling "defied logic".
"We strongly believe shoppers could suffer if Footasylum stopped having to compete with JD Sports. It is likely they would pay more for less choice, worse service and lower quality," said Kip Meek, chair of the CMA inquiry group.
50% of online shoppers surveyed by the CMA said they would go to JD Sports if they were unable to shop at Footasylum for clothing, while 43% said they would the make the switch if they could no longer buy footwear from Footasylum.
We’ve ordered JD Sports to sell Footasylum after our investigation has found the purchase raises competition concerns.
We’ll oversee the sale and approve the purchaser to make sure that Footasylum runs as a fully independent competitor.
Read more: https://t.co/QabOAl3vXb pic.twitter.com/h0tIuV5u2k
— Competition & Markets Authority (@CMAgovUK) November 4, 2021
These figures were substantially higher than for any other retailer. Another CMA survey of in-store shoppers showed similar results.
The CMA also found that, despite increased competition from firms such as Nike (NKE) and adidas, and the impact of COVID-19, Footasylum would remain in good financial health.
With a total revenue for 2020/21 of £232m, the retailer reported underlying profits (EBITDA) of £29.3m for the year, up from £25.5m in 2019/20 and £2m in 2018/19.
"As separate, rival entities, these companies can continue to compete for shoppers online and as they return to the high street," said Meek.
According to Russ Mould, investment director at AJ Bell, the last reported full-year numbers from Footasylum as a standalone business were from the year to 24 February 2018 where it saw revenue jump by a third to £195m. JD generated £3.16bn in sales in the comparable period (the year to 2 February 2018), and its most recent full year saw revenue rise to £6.17bn.
"So even if Footasylum had continued to grow at a fast rate, it would still only represent a fraction of JD’s overall sales," said Mould.