This morning’s decision by the Competition and Markets Authority to block JD Sports acquisition of Footasylum has been described by JD Sports management as absurd, and given the current retail environment it’s hard to disagree with that assessment.
While it’s easy to argue that JD Sports management would argue that, today’s decision by the CMA appears to take little account of the complete change of economic environment that has taken place since JD Sports bought its smaller competitor nearly a year ago.
The CMA’s reasoning for investigating the acquisition was always a little questionable, since Footasylum only accounted for about 5% of the retail market at the time of acquisition.
In its judgement the CMA noted that two-thirds of Footasylum’s in-store customers said that they would shop at JD Sports. That’s not altogether surprising given JD Sports' size alongside Sports Direct, relative to the size of the overall market, however the competitiveness of that retail market, alongside online shopping, would still limit the ability of either company to keep prices high.
Despite this the CMA judged that the loss of competition would leave consumers worse off. The CMA therefore decided that the only way to address the competition concerns is for JD Sports to sell Footasylum, in full, to an approved buyer. While that might have been possible a year ago, that is highly unlikely now and even if JD Sports were able to find a buyer, they would have to take a huge loss on the original acquisition price of £90m.
At a time when UK retail is facing numerous challenges even without the coronavirus shutdowns, this decision comes across as completely incomprehensible, and could result in significant numbers of job losses, and would in all likelihood make little difference to overall prices in the long run.
The decision to block the Asda and Sainsbury merger may have made some sort of sense, given the size of both brands. This clearly does not and rather calls into question the overall competence of the CMA’s processes.