The UK Competition Authority blocks a sports-fashion retailer acquisition finding that even with COVID-19 significantly impacting the relevant sector, the transaction would lead to a substantial lessening of competition nationally (JD Sports / Foot asylum)

On 6 May 2020, the UK’s Competition and Markets Authority (“CMA”) blocked the sports-fashion retailer JD Sports’ already completed purchase of sportswear retailer Foot- asylum. The CMA concluded that the parties were close competitors and the transaction would lead to a substan- tial lessening of competition nationally in the sports-in- spired casual footwear and clothing market, which would leave shoppers with fewer discounts or receiving a lower level of customer service.

Following the completion of the deal, the CMA referred the merger for an in-depth investigation after JD Sports declined to offer remedies to address the CMA’s initial competition concerns. Having reviewed the transaction, the CMA concluded that a number of key pieces of evidence pointed to close competition between the parties. From an analysis of the companies’ internal strategies and decision-making documents, it discovered that the two parties monitor each other’s activity closely. The CMA also surveyed over 10,000 of the par- ties’ customers, finding that more than two-thirds of customers surveyed would switch to JD Sports if Footasylum left the market. The CMA also found that Footasylum store openings negatively impacted footwear and clothing sales at nearby JD Sports stores. With regard to the relevant product market, although the parties are active in selling products both in-store and online, the CMA considered these two sales channels to be one product market given evidence indicating that consumers in the sports-inspired casual footwear and clothing market shop both in-store and online interchangeably.

In assessing whether rival retailers posed a competitive constraint on the parties, the CMA determined that rivals, such as Foot Locker and Sports Direct, which sell multiple brands, as well as Nike and Adidas, which sell only one brand, impose a lower competitive constraint than the parties do on each other. As a result, the CMA found that the level of competition these rivals exert on the parties was not sufficient to stop consumers being worse off after the merger.

While the CMA acknowledged that the COVID-19 crisis has led retailers to face uncertain and challenging trading conditions, the CMA said that it had not found evidence that the impact of coronavirus would remove its competition concerns. Last month, the CMA released guidance indicating that it would consider the impact of COVID-19 during merger reviews under its existing “failing firm” framework (see VBB on Competition Law 2020, No. 4). However, the CMA noted that neither party had claimed that it would exit the market absent the merger.

Nonetheless, JD Sports argued that the CMA should have given the impact of the COVID-19 crisis much more atten- tion and has indicated that it intends to appeal the decision.

Specifically, JD Sports contends that the CMA’s decision fails to take account of the dynamic and rapidly evolving competitive landscape and the long-lasting impact that COVID-19 has had on the industry, to the particular detriment of smaller retailers like Footasylum, which it says is in a weak financial position. As the acquisition was completed before the CMA started its in-depth review, JD Sports will now have to sell Foota- sylum. Although the CMA has indicated that, in light of the COVID-19 outbreak, it will give JD Sports “sufficient” time to sell Footasylum, this case shows the danger of completing an acquisition in the UK in cases where the CMA may have jurisdiction to investigate.

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  • Van Bael & Bellis (Brussels)

Quotation

Porter Elliott, The UK Competition Authority blocks a sports-fashion retailer acquisition finding that even with COVID-19 significantly impacting the relevant sector, the transaction would lead to a substantial lessening of competition nationally (JD Sports / Foot asylum), 6 May 2020, e-Competitions May 2020, Art. N° 95163

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