JD Sports Fashion Plc Update on CMA review of Footasylum acquisition (4681K)
02 Settembre 2021 - 08:04AM
UK Regulatory
TIDMJD.
RNS Number : 4681K
JD Sports Fashion Plc
02 September 2021
2 September 2021
JD Sports Fashion Plc
Update on CMA review of Footasylum acquisition
JD Sports Fashion Plc (the 'Group' or 'JD') notes the
announcement earlier today from the Competition and Markets
Authority ('CMA') that it has again provisionally prohibited the
Group's acquisition of Footasylum Limited ('Footasylum').
JD nevertheless remains committed to its transaction goal of
improving Footasylum's resources, access to product and
differentiated customer proposition.
This case was remitted back to the CMA by the Competition Appeal
Tribunal (the 'Tribunal') on 4 March 2021. The Tribunal had quashed
the original report which prohibited the deal noting that the CMA
had "acted irrationally in that it did not have the necessary
evidence" in relation to its conclusions on the possible effects of
the COVID-19 pandemic on our market.
In its ruling, the Tribunal found that a pivotal failing of the
CMA was its lack of inquiry into the increased competitive threat
of Nike's and adidas' own Direct to Consumer ('DTC') retail offer
caused by the pandemic. A unique feature of this market is that, as
with all retailers in the brands' wholesale channel, JD and
Footasylum, rely entirely on these brands for their supply of Nike
and adidas branded product but also compete hard against their
growing DTC operations.
Accordingly, one of the CMA's primary tasks in the remittal
process was to consider the impact that COVID-19 has had on Nike's
and adidas' DTC strategies. A specific way of measuring this change
is to look at the ratio of the brands' DTC sales to the sales they
make to third party retailers on a wholesale basis. In May 2020,
the CMA reached a static conclusion that "the ratio of DTC to
wholesale sales will not change significantly". The Tribunal found
that the CMA had failed to investigate the dynamic question of
"whether, and to what extent, the unfolding pandemic might affect
the DTC-wholesale ratio".
The evidence to answer that dynamic question is indisputable. By
causing a structural shift in favour of online shopping, the
COVID-19 impact has empowered and accelerated Nike's and adidas's
DTC strategies:
-- Nike: Prior to the pandemic, DTC represented less than a
third of total sales growing to almost 40% in its last financial
year to 31 May 2021. In June 2021, Nike announced a new target of
60% sales from DTC by 2025.
-- adidas: Prior to the pandemic, DTC represented approximately
a third of total sales growing to over 40% in its last financial
year to 31 December 2020. In March 2021, adidas announced a new
target of 50% sales from DTC by 2025.
In addition, while DTC has expanded so strongly, the CMA now
correctly concludes that "the constraint by Footasylum on JD Sports
to be only moderate, at best".
The Group finds it surprising that these key facts have changed
so substantially but the CMA's conclusion has not. In these
circumstances, it struggles to understand how the merger could
result in a "substantial lessening of competition" in a market
which is increasingly being shaped by the brands' DTC strategies.
In particular, the Group does not understand how the CMA can so
clearly agree with JD that it would have no incentive to
deteriorate the price, quality, range and service offered at JD but
then still find, despite all the market dynamics, that JD would
find it commercially rational to worsen the Footasylum retail offer
for a period of two years or more.
These findings are provisional and we will continue to make our
case strongly to the CMA before it releases its Final Report due in
October 2021.
Peter Cowgill, Executive Chairman of JD Sports Fashion Plc,
commented:
"We have made compelling submissions on the committed
positioning of the global brands towards Direct to Consumer and the
consequent impact on an extremely competitive marketplace. I am
perplexed and again disappointed that these have been rejected. I
am not sure what further evidence the CMA needs to appreciate the
extent of this dynamic change which has been substantially
accelerated by COVID-19.
"If the CMA's mission is indeed to "make markets work well in
the interests of consumers, businesses and the economy" then I urge
the CMA to reconsider its position before making its final
determination. This transaction will simply not "lessen"
competition, let alone "substantially". On the contrary, clearance
would enable JD to invest in Footasylum and work with its
management team to increase the quality, range and choice of
products available to its consumers which will bring wider benefits
to a UK High Street decimated by a number of high-profile
closures."
Enquiries:
JD Sports Fashion Plc Tel: 0161 767 1000
Peter Cowgill, Executive Chairman
Neil Greenhalgh, Chief Financial Officer
Jennifer Iveson, Investor Relations
MHP Communications Tel: 0203 128 8193
Andrew Jaques
Peter Hewer
Charles Hirst
Catherine Chapman
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