Sports retailers JD Sports and Footasylum fined almost £5m for 'competition breach'

Sportswear retailers JD Sports and Footasylum have been fined almost £5 million after breaching the rules around an attempted merger last year, which was blocked by the Competition and Markets Authority (CMA).

The deal was put under investigation and the firms prevented from exchanging commercially sensitive information without consent.

However, the competition regulator said there was a "black hole" regarding meetings between the business, whilst also saying some records of their talks had been "deleted."

JD Sports, which has its distribution centre located at Kingsway Business Park, admitted "inadvertently" breaking the rules, but said it believed the CMA had drawn "incorrect conclusions" or "presented in a misleading manner through the use of inflammatory language."

JD Sports adds that whilst it "accepts that some phone records were not available, it absolutely refutes any allegation that this was due to records being deliberately deleted. In this regard, JD can also confirm that it voluntarily submitted all of its relevant devices to a third party for expert forensic analysis."

The order required the companies to "immediately" alert the CMA of any chance that commercially sensitive information may have been shared, and for both to put robust measures in place to prevent such breaches.

Upon review, the CMA said it found that “both companies had severely deficient safeguards in place – so much so that they created an environment where information exchanges were almost inevitable.”

The CMA said that during two meetings on 5 July and 4 August 2021, the companies' CEOs Peter Cowgill and Barry Brown "exchanged commercially sensitive information and then failed to alert the CMA."

It later emerged that they had discussed:

• Footasylum’s issues with stock allocations from key brands
• information about Footasylum’s financial performance
• the planned closure of six Footasylum stores, with the locations of at least two being revealed
• Footasylum’s contract negotiations with its transport and delivery provider
• contract negotiations for the renewal of Footasylum’s head office space

The CMA says sharing of this information had “the potential to affect competition in the market and lead to anti-competitive behaviour” and “and increased the risk that it could impact future business decisions taken by the companies.

The CMA blocked the merger in November 2021, ruling that the takeover could lead to a "worse deal" for customers.”

Kip Meek, chair of the inquiry group investigating the merger, said: “There is a black hole when it comes to the meetings held between Footasylum and JD Sports. Both CEOs cannot recall crucial details about these meetings.

“On top of this, neither CEO or JD Sports’ General Counsel can provide any documentation around the meetings – no notes, no agendas, no emails and poor phone records, some of which were deleted before they could be given to the CMA.

“Had there been proper safeguards in place, we would have been alerted to these breaches in good time and would have had the necessary information to tackle them head on.

“It jeopardised our ability to maintain the benefits of a competitive market for shoppers and ensure there is a level playing field for other businesses. This fine should act as a warning – if you break the rules, there will be serious consequences.”

For failing to have safeguards in place, JD Sports must pay £2.5 million and Footasylum £200,000.

For sharing commercially sensitive information, and then failing to alert the CMA, JD Sports will be fined £1.8 million and Footasylum £180,000.

Responding to the fines, a spokesperson for JD Sports said: “JD has been subject to hold separate measures in relation to Footasylum since May 2019 and balancing the obligations of separation and business stability over such a long period, which has also coincided with the Covid-19 pandemic, has been complex and not without challenge.

“At no point has there been any intention to breach the rules although JD does accept that, inadvertently, it was in receipt of limited commercially sensitive information and that this was not reported to the CMA immediately.

“However, JD believes that a number of the further conclusions which the CMA have drawn are either incorrect or have been presented in a misleading manner through the use of inflammatory language.

“In particular, JD notes that the CMA are suggesting, for the first time, that phone records have been deleted and, whilst JD accepts that some phone records were not available, it absolutely refutes any allegation that this was due to records being deliberately deleted. In this regard, JD can also confirm that it voluntarily submitted all of its relevant devices to a third party for expert forensic analysis.

“JD would also point out the following:

• JD has always acted honestly and in good faith in its efforts to comply with the order and in responding to enquiries from the CMA, some of which related to events which took place eight months prior
• JD has had market standard guidance in place which has been continually reviewed and updated
• There was no prohibition on the CEOs meeting and, indeed, JD was actively required to retain the employment of Footasylum’s key employees during the period of the order
• There was no legal requirement in the order for JD to either notify the CMA that a meeting had taken place or take notes of these meetings

“Ultimately, JD does not believe that the description of events or the penalty that has been levied is a fair reflection of the group’s efforts to ensure compliance with the order.

“JD will now review the detail of the CMA’s decision although the group has already taken swift action to implement additional measures to strengthen its processes in this area which now go well beyond what is legally required by the CMA.

“Separately, JD will continue to work constructively with the CMA on the process to divest Footasylum in line with the CMA’s decision in November 2021.”

Footasylum, which is headquartered at Sandbrook Park, Rochdale, and has a distribution centre at Stakehill, Middleton, has also been contacted for comment.