Case Study 2: JD Sports and Footasylum

Read the following extracts of the CMA report (2022c), particularly around market information. Consider the information provided and decide whether you would let the merger continue, and what type of merger it seems to be. 

JD Sports is an international retailer, operating a number of different store brands in the UK, its largest being JD Sports, which consistently performs very well financially and is growing substantially (operating 375 stores and online). Footasylum, although a smaller UK retailer, is a sizeable business, having grown over the last decade to operate 70 stores in the UK and online. Both are multi-million-pound businesses with millions of customers shopping in their stores and online. Their UK revenues in 2018/19 were £2.1 billion for JD Sports and £227 million for Footasylum. 

There are many similarities between these two businesses. Broadly speaking, both sell ‘sports-inspired casual footwear and apparel,’, i.e. fashionable branded sportswear used primarily for leisure rather than for sport, sometimes known as ‘athleisure’. Branded products by Nike and Adidas make up the majority of their footwear sales and are also important in apparel, although they sell a wider range of apparel brands, including own-brand apparel. Both businesses also target a similar demographic – 16-24 year olds, with a focus on males.

We found that the Parties regularly monitor each other as well as some other retailers. Footasylum’s internal documents show that it monitors JD Sports more closely than any other retailer, and therefore that JD Sports is a particularly significant competitor to Footasylum. Footasylum is also one of the retailers most closely monitored by JD Sports’ internal documents, along with Foot Locker, ASOS, Nike and Adidas.  

Our surveys show that the Parties’ customers also consider them to be a strong alternative to each other. We found that JD Sports is by far the closest competitor to Footasylum. A very high proportion of Footasylum’s customers said that they would shop at JD Sports if they could no longer shop at Footasylum- more than two-thirds of in-store customers (68%) and almost half of online customers of footwear (46%). This was similar for apparel, where 69% of Footasylum’s in-store customers and 61% of online customers said they would go to JD Sports.  

The proportions of JD Sports’ footwear who said they would go to Footasylum were lower (21% of in-store customers and 16% of online customers), although this in-store level is still higher than for any other retailer and online Footasylum is a close second to Nike at 18%. This was similar for apparel, where 17% of JD Sports’ in-store customers would go to Footasylum and 13% of its online customers (second to Nike 14%). 

Our analysis of the impact of store openings and closures also indicates that Footasylum is a competitive constraint on JD Sports. Entry by Footasylum is associated with a fall in nearby JD Sports store revenues for footwear and apparel. We did not have enough data to test the impact of JD Sports’ store openings on Footasylum stores.  

However, the market share figures show that the share increment from the merger is fairly low; JD Sports is clearly the largest retailer in the market with an estimated share in each of sports-inspired casual footwear and apparel of [20-40]%, and Footasylum is smaller with a share of [0-10]%. But delineating a ‘market’ in this case is somewhat artificial, given these is such a wide range of different products.  

After reading the extracts, what type of merger is this transaction displaying?