JD Sports and its biggest shareholder Pentland have been fined £300,000 by UK Competition and Markets Authority (CMA) after breaching the watchdog’s ruling over purchasing Footasylum.
The £300,000 fine is understood to be the largest amount ever charged for a one-off infringement.
The initial enforcement order (IEO) allegedly breached was issued in May 2019 and stated that no Footasylum assets were to be sold without approval. However, Footasylum has broken this clause by exiting a Wolverhampton store.
The CMA said that the retailers had “without reasonable excuse, failed to comply in certain respects with the requirements imposed on them by the initial enforcement order issued by the CMA.
“The CMA finds that JD Sports and Pentland failed to comply with the IEO by not procuring that: a) Except with the CMA’s prior written consent or in the ordinary course of business for the separate operation of the Pentland business and the Footasylum business, none of the assets of the Footasylum business was disposed of; and B) Each of their subsidiaries – including Footasylum – complied with the IEO as if the IEO had been issued to each of them.”
JD Sports now has 28 days to appeal the penalty.
Response from JD Sports
JD Sports responded that it disagreed with the CMA’s decision and was “carefully considering our options”, adding that the breach was made by Footasylum without prior knowledge.
A spokesperson for the company said: “We strongly disagree with the CMA’s decision to fine JD Sports for an alleged breach of the ‘hold-separate’ order. The terms of the order legally oblige JD and Footasylum to be operated as separate businesses by separate management teams, with the consequent alleged breach relating to an independent decision made by Footasylum management without JD’s knowledge or involvement. We are carefully considering our options.”
The initial decision by the CMA
JD Sports bought UK-based shoe brand Footasylum last year for £90m but the CMA ordered for the chains to be kept as separate companies. Earlier this year, the CMA blocked the deal completely and demanded that JD Sports sell Footasylum, a decision which the retailer is currently appealing.
The CMA ruled that the deal would mean shoppers would “lose out” and see less choice and fewer discounts. It made this decision after looking into company and competitors’ documents and surveys of more than 10,000 JD Sports and Footasylum customers.
JD Sports executive chairman Peter Cowgill had said of this decision: “The CMA’s provisional decision is fundamentally flawed and demonstrates a complete misunderstanding of our market to an alarming extent, given its six-month review.
“The competitive landscape described by the CMA is one which neither I, nor any experienced sector analyst, would recognise. Just take a walk down any major UK High Street or search for Nike or Adidas trainers on Google and you see for yourself how competitive this marketplace really is.”
How the CMA determines penalties
In CMA’s ‘guidance as to the appropriate amount of a penalty’ licence, the non-ministerial government department states that its objectives on financial penalties are “to impose penalties […] which reflect the seriousness of the infringement” and “to ensure that the threat of penalties will deter both the infringing undertakings and other undertakings that may be considered anti-competitive activities from engaging in them.”
The licence also informs that the CMA determines the level of penalty by using a six-step approach, which involves calculation concerning the seriousness of the infringement, adjustments for the duration, aggravating or mitigating factors, proportionality and leniency, and an adjustment “if the maximum penalty of 10% of the worldwide turnover of the undertaking is exceeded”.
JD Sports stock value
JD Sports share price plummeted at the start of the Covid-19 coronavirus pandemic from around 878p at the end of February to 293p near the end of March. Today, the sports chain’s share value stands at around 650p, having been steadily over the 600p mark since the end of May.