JD Sports and Footasylum – A Complicated Relationship?

JD Sports or Footasylum?

JD Sports and Footasylum are the dominant retailers in the sports-fashion industry, both selling similar brands and range of items. And, after considering the different styles on offer and the price, we usually don’t cast too much thought into which shop we choose to set foot in. Many customers see them as merely two different options on the High Street, or two different websites on the internet (the latter becoming increasingly important!).

The two stock endless types of tracksuits, tops and trainers, as they aim to provide all our streetwear and gym wear needs. But, below the seemingly harmonious surface, lies an increasing tension between the two competitors…

The Background:

JD Sports (JD), founded in 1981, is a sports-fashion company selling both branded and own brand sports and casual wear as well as trainers. It stocks giant global brands under one convenient roof, such as Nike, Adidas, and The North Face. JD has also developed its own brand labels, such as Pink Soda. The company’s success is clearly evident in its stellar rise in popularity globally: the JD brand has over 700 shops, which are present on most UK shopping complexes and internationally, including throughout Europe, the United States, Asia and Australia. Its business model has provided to be very prosperous for the company, with the JD’s current worth estimated to stand at over £5 billion.

However, the JD brand does not owe all of its successes to the JD shop alone! The company is a multichannel retailer and owns other fashion brands includes retailers such as Size?, Blacks and Millets. JD continues to expand its retail empire and in early 2019 planned to take over its rival retailer, Footasylum.

The Plan:

In 2019, JD agreed a £90 million deal to purchase Footasylum – a somewhat smaller presence with only around 60 stores in comparison to JD’s 770-store strong empire! But nevertheless, Footasylum is a threatening competitor.

Footasylum was founded in 2005 by the original founders of JD Sports: David Makin and John Wardle. The company is not yet part of the JD Sports chain, although JD Sports does already holds a 18.7% stake in Footasylum since buying shares in the competitor in 2019. Footasylum has over 2500 employees across its stores and its popularity continued to grow with revenue up 19% in 2018. However, at the start of 2019, Footasylum issued a number of profit warnings due to profit margins being hit by steep discounting over the festive season. Instead of allowing Footasylum to be forced to call the administrators, JD came to the rescue. JD was to takeover Footasylum, encompassing it as part of the chain and further dominate the retail landscape. Footasylum is already a well-known company with a similar product range, target audience and a good reputation.

In taking over the company was JD Sports a knight in shining armour, or did the retail giant simply take advantage of a golden opportunity?

But Not So Fast…The Role and Intervention of the CMA:

As part of the Competitions and Markets Authority’s (CMA) role, they investigate instances where two companies come together to create one (a merger) or when one company purchases another company and/or its assets (an acquisition). The CMA considers if such a move could restrict competition or have adverse impacts on competition and consequently having an unfair effect on customers and the market.

The CMA described JD and Footasylum as ‘close competitors‘ and stated that the move would substantially lower competition in the market. Consequently, the CMA blocked the deal. Their concerns were that the deal would provide JD with a monopoly position in the market, resulting in less price competition in the market, fewer discounts, lower quality service and also reduced choice for customers.

The Comeback:

Earlier this year, JD appealed as they fundamentally disagreed with the CMA’s decision. They argued that the assessment of the impact on competition was too broad and the CMA did not consider enough relevant factors or take account of key market factors in arriving at its decision. Click here to see the appeal.

For example, JD and Footasylum are not just in competition with each other, but also the sportswear brands they resell. So, competition will still exist in the market via the brand that are sold such Nike and Adidas. 

Not forgetting that the current coronavirus pandemic has found a way to impact every aspect of our lives. And, in JD’s appeal there is no doubt that it should now be an influencing factor in this deal too. JD reminded the CMA that that coronavirus has had a detrimental effect on smaller retailers such as Footasylum and the move would provide a way to mitigate this. While many businesses have seen better days, JD seeks to rescue Footasylum from a similar fate.

Subsequently, in November 2020, the Competition Appeal Tribunal, quashed the decision by the CMA stating that the CMA had acted irrationally in its decision to block the takeover. The outcome of this is means that the previous block on JD’s takeover of Footasylum is no longer valid and the proposed plans will be given back to the CMA for a full and proper consideration.   

JD remain insistent that the deal will provide significant long-term benefits to customers, colleagues and brand partners. The plans are now being, once again, being considered by the CMA and we await a final decision … 

Conclusion:

There are very few other alike retailers in the market especially with such a substantial market presence. If the takeover is approved, this will be beneficial because we will then only have to trek to one shop or browse one webpage where all the products are conveniently together. In addition, with many retailers now struggling to survive, if we don’t want to see the High Street completely desolate we do need the bigger more financially equipped retailers to be present. But, by having a one stop shop for sports-fashion retail, does this not also limit our options? Who will we turn to when JD don’t have our product of choice? 

This article was written by Mollie Bailey Hammerton. Mollie is a is Content Writer for According To A Law Student (ATALS) and a penultimate year Law LLB student at the University of Liverpool aspiring to pursue a career at the Bar. Mollie is particularly interested in Commercial Law.