Reed Smith Client Alerts

On 6 May 2020, the UK Competition and Markets Authority (CMA) announced that it has prohibited the completed acquisition by JD Sports Fashion plc of Footasylum plc.

  • The CMA found that JD Sports and Footasylum are close competitors and post-merger would not face sufficient competition from other competitors. 
  • The CMA defined the online and bricks-and-mortar markets for sports-inspired casual footwear and apparel as one market, in a departure from other recent retail cases. 
  • Unusually for the CMA, this is the third prohibition decision in the course of a year. This comes as the CMA’s caseload of large and complex cases is expected to increase post-Brexit. 

Authors: Ross Mackenzie Marjorie C. Holmes Emma Weeden Vaibhav Adlakha

Almost a year after JD Sports purchased Footasylum, the CMA has completed its in-depth (phase 2) investigation into the acquisition, finding that the merger would lead to a substantial lessening of competition in sports-inspired casual footwear and apparel products sold both in-store and online. The CMA concluded that no lesser remedy than prohibition would be effective in restoring pre-merger competition. Notably, the parties did not argue in favour of a more limited remedy package, such as divestment of certain selected stores.

The CMA’s report focuses on assessing the closeness of competition between JD Sports and Footasylum, as well as the constraint they face from other competitors. The CMA undertook a very detailed review, contained in its 350 page report, and concluded that a number of key pieces of evidence pointed to close competition between the parties, including: 

  1. Importance of internal documents – the CMA reviewed over 2,500 of the parties’ internal documents. The CMA found that the parties monitored each other more closely than other competitors (such as Foot Locker, ASOS, Nike and Adidas). The CMA considered that such close monitoring was persuasive in showing the parties to be close competitors. 
  2. Survey – the CMA surveyed over 10,000 of the parties’ customers, finding that there was a high diversion between the parties (the proportion of one party’s customers that would choose to shop at the other if their usual preference was unavailable). 
  3. Impact assessment – the CMA analysed the effect that the opening of new stores operated by different retailers (including each of the parties) in close proximity to locations of existing stores of the parties would have on these stores’ revenue. A large revenue effect indicated that a competitor competed closely. 
  4. Pricing pressure – the CMA used the information gathered  to calculate a measure of upward pricing pressure resulting from the merger (GUPPI), as it has done in other recent retail mergers, in particular that of Sainsbury’s and Asda.