TIDMJD.
RNS Number : 0384M
JD Sports Fashion Plc
06 May 2020
06 May 2020
JD Sports Fashion Plc
Update on CMA review of Footasylum acquisition
JD Sports Fashion Plc (the "Group") today provides an update
following the Competition and Markets Authority's ("CMA") decision
to prohibit the Group's acquisition of Footasylum Limited
("Footasylum") and require the sale of the Footasylum business.
The Group fundamentally disagrees with the conclusion reached by
the CMA in its Final Report, which materially fails to take proper
account of the dynamic and rapidly evolving competitive landscape
in which we operate, as well as the long lasting - and likely
permanent - impact that COVID-19 has had on our industry, which may
never return to its pre-merger state, to the particular detriment
of smaller retailers like Footasylum.
UK sports retail is one of the most dynamic and intensely
competitive markets in the world, within which a large number of
retailers selling third-party brands compete not only with each
other, but also with major online pure-players and the increasingly
powerful direct to consumer ("DTC") operations of the international
brands themselves.
Yet, despite numerous public announcements from direct
competitors such as Sports Direct confirming that they are
elevating their propositions to compete even more closely with JD,
alongside the very public and undeniable marked acceleration in
adidas and Nike's DTC growth strategies, the CMA has failed to
properly understand these trends and has completely dismissed any
evidence which goes against their prejudged and erroneous
interpretation of our market.
Even before considering the impact of COVID-19, the UK sports
retail market is, without doubt, materially different today than
when the CMA instigated its review 12 months ago. Additionally, the
CMA's conclusion becomes even more difficult to comprehend in the
context of COVID-19 and the seismic impact it has had on the
current UK retail environment; not to mention the enduring
challenges that will exist beyond the current lockdown as a result
of social distancing and weakened consumer confidence.
In March 2020 alone, the Office for National Statistics reported
that UK retail sales experienced their biggest monthly fall since
records began over 30 years ago, with clothing seeing the largest
drop-off in demand, as sales volumes decreased by 35%. This
downward trend is especially pertinent for Footasylum, which was in
a weakened financial position at the time of the acquisition, is
heavily dependent on sales from its physical store estate, and
which, without JD's financial backing, may well have been forced to
exit the market, joining the long list of retail casualties we've
already seen during the current crisis.
The CMA recently reiterated its merger assessment criteria and
its position on deals involving "failing firms" during the COVID-19
pandemic stating that; "Events which occur during the CMA's review
of a transaction (such as the business impact of Coronavirus
(COVID-19)), but which are not a result of the merger, can be
incorporated into the counterfactual." It is clear from today's
Final Report that the CMA has failed to recognise the reality of
Footasylum's financial situation and the impact of the current
crisis on its long-term prospects.
In conclusion, we firmly believe that the CMA has failed to meet
its objective of protecting consumer interests and today's decision
will be detrimental for Footasylum, its customers, its 2,500 staff
and the UK sports retail market as a whole. We are carefully
considering whether to make an application to the Competition
Appeal Tribunal to review this decision.
Peter Cowgill, Executive Chairman of JD Sports Fashion Plc,
commented:
"We fundamentally disagree with the CMA's decision, which
continues to rely on an inaccurate and outdated analysis of the UK
sports retail competitive landscape, and is underpinned by outdated
and flawed customer surveys.
"At the same time, incredibly, the CMA has been taken in by the
self-serving testimony of one notoriously vocal competitor, who has
made numerous public announcements confirming their ongoing
investment in their elevation strategy and who has blatantly
participated in the process for their own commercial interests
rather than for the benefit of consumers.
"When the CMA published its provisional findings in February, we
said at the time that they demonstrated a complete misunderstanding
of our market to an alarming extent. Today, and equally
frustratingly, in the midst of a global pandemic and with the UK
high street in a state of complete lockdown, the CMA's final
decision is even more absurd.
"Since the CMA launched its review 12 months ago, the
competitive landscape in which we operate has changed beyond
recognition. Further, since the outbreak of COVID-19, competition
has not lessened; it has become even more intense as the consumer
transition to online has accelerated at a meteoric rate. We are
astounded that the CMA has failed to recognise that this isn't just
a short-term blip, but rather a long-term societal and behavioural
change in how consumers shop.
"As physical stores have closed in line with Government
guidance, consumers have shifted their spending exclusively online,
where Footasylum is an insignificant player in the context of the
overall market and heavily dependent on its store estate. The clear
evidence from China and other European markets is that, when
current lockdown measures are lifted, it is virtually certain that
footfall levels will not return to pre-crisis levels. This outcome
would disproportionately impact smaller retailers like Footasylum,
whose stores and shopping centre outlets rely so heavily on
concentrated footfall and high trading densities.
"It is therefore extraordinary for the CMA to now require the
divestment of Footasylum, in full knowledge of the impact that
COVID-19 has had on its operations and, indeed, the retail industry
as a whole. In this regard, we must face the fact that there is a
significant probability that a prospective purchaser could look to
substantially reduce Footasylum's central operations, resulting in
a considerable loss of jobs, particularly in the North West of
England, which is entirely at odds with the Government's current
strategy.
"When the Group made its offer in March 2019, it was our
intention to fully support Footasylum and its employees to grow the
business and increase the quality, range and choice of products
available to customers. We still firmly believe that bringing
Footasylum into the Group will deliver these significant benefits
for both consumers and the UK high street.
"At no time during this process has the CMA considered deviating
from its erroneous view of competition in our market, which was
determined at a premature stage, and heavily influenced by a
snapshot customer survey and the picture presented by a
self-interested third party. G iven the injustice of the CMA's
decision and its disregard of irrefutable evidence of real-world
competition, we will now carefully consider whether to formally
challenge today's decision in the Competition Appeal Tribunal."
Enquiries:
JD Sports Fashion Tel: 0161 767 1775
Plc
Peter Cowgill, Executive
Chairman
Neil Greenhalgh, Chief Financial
Officer
Jennifer Iveson, Investor
Relations
MHP Communications Tel: 0203 128 8788
Andrew Jaques
Giles Robinson
Charles Hirst
Catherine Chapman
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END
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