Affected market: Womenswear
The OFT’s decision on reference under section 33 given on 26 September 2006. Full text of decision published 29 September 2006.
Please note square brackets indicate information replaced by a range at the request of the parties for reasons of commercial confidentiality.
Mosaic Fashions HF (Mosaic) is a company listed on the Icelandic stock exchange. Baugur Group hf (Baugur) is Mosaic’s main shareholder. Both Mosaic and Baugur are active in the UK in the retail supply of womenswear, the latter via its interests in JN Group Limited and Lear Holdings Limited.
Rubicon Retail Limited (Rubicon) is a privately owned UK company active in the retail supply of womenswear and footwear in the UK. Rubicon’s UK turnover in the financial year 2005/2006 was around £371 million.
On 8 September 2006, Mosaic agreed to acquire the whole of the issued share capital of Rubicon. Mosaic submitted a Merger Notice on 16 August 2006; the statutory deadline expires on 28 September 2006.
As a result of this transaction Mosaic and Rubicon will cease to be distinct. The UK turnover of Rubicon exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.
In the UK, Mosaic owns the womenswear brands Oasis, Coast, Karen Millen and Whistles. Baugur has a controlling interest in JN Group Limited and Lear Holdings Limited, owners of womenswear brands Jane Norman and MK (formerly MK One). Rubicon owns the following UK womenswear brands: Principles, Warehouse and Shoe Studio. (see [Note 1]) The activities of the parties therefore overlap in the management of womenswear brands and the operation of retail outlets for their sale in the UK. (see [Note 2])
Womenswear comprises a wide range of offerings in price, style, occasion, and fashionability. The parties submit that the sector may be segmented as follows: (i) value segment; (ii) mid-range segment; and (iii) premium segment.
According to the parties, the overlap between their activities occurs in the mid-range segment. In this case we have focused the horizontal competition assessment on the extent to which the merging parties are close competitors (considering various elements of brand positioning), and the constraints that they face from other suppliers of womenswear. It has therefore not been necessary to conclude on the precise product scope.
The parties submit that the relevant geographic frame of reference for womenswear is national because they, and their major competitors, are active across the UK, and because branding, advertising, pricing, and the nature of the product offering are determined nationally. Competitors who responded to our inquiries generally agreed with this proposition.
In our view, demand for womenswear retail appears to be predominantly local. We considered whether there are any local dimensions of competition between womenswear retailers. Some evidence from third parties who responded to our enquiries indicated that decisions relating to staff numbers and opening hours may have a local dimension. We consider that local competition, if present, would take place across the relevant high streets or shopping centres. [ ].
In view of the above, we considered the competitive effects of the merger at a national and local level. However, in this case it has not been necessary to conclude on the precise geographic scope since concerns do not arise in any event.
On a national basis, the merged entity’s share of supply in the mid-range womenswear segment is around [0-10] per cent (increment [0-10] per cent). The post-merger share of supply of all womenswear is similar. (see note 3) In a fragmented market, these shares of supply do not give rise to competition concerns because they indicate that there are numerous competitors that will constrain the merged entity.
Given the extent of product differentiation in this sector, we also considered the closeness of competition between the parties’ respective brands. The parties’ internal documents and the responses received from third parties indicate that of the brands owned or controlled by the parties, Oasis and Warehouse compete most closely. However, both the merging parties’ internal documents and third party responses suggest that Oasis and Warehouse face competition from a number of competing brands, for instance Mango, Zara, River Island and Topshop. These competitors will continue to provide a post-merger constraint on Mosaic.
On the available evidence, the parties’ other brands are not particularly close competitors to each other, and they also face competition from a number of other brands. (see [Note 4]) Therefore, if this merger were to give rise to competition issues on a local level, they would be most likely to arise in locations where Oasis and Warehouse outlets are both present.
We therefore carried out a local competition analysis based on areas where Warehouse and Oasis outlets are located within a 1.5 mile linear distance of one another. (see [Note 5])
Based on a narrow competitor set consisting of closely competing brands, (see [Note 6]) we found that in more than 98 per cent of areas, the merged entity will face at least three competing outlets. In the areas where the merged entity would face fewer than three competing outlets from the narrow competitor set, we found that at least four other competitors were present (for example: Gap, Marks & Spencer (Per Una), Next, Pilot, Dorothy Perkins).
Furthermore, the evidence available to us indicates that expansion by existing retailers into local areas is not unduly difficult, and sunk costs associated with store opening are relatively low. The parties and third parties mentioned examples of recent or planned store openings, as well as relatively large scale expansion in the UK by European brands such as Zara and Mango.
On this basis, we do not expect competition concerns to arise either on a national or local level.
THIRD PARTY VIEWS
Third parties who responded to our inquiries did not raise horizontal competition concerns. Where relevant, third party views have been referenced in the decision.
It should be noted that a small number of third parties raised the issue of upstream buyer power, suggesting that the merger may provide Mosaic with a larger portfolio of concessions in department stores, which may enable it to secure better terms (at the expense of its competitors). We found no evidence to support this proposition. In particular, the merged entity’s share of supply in womenswear is very low, indicating that the merged entity does not have significant buyer power with respect to concessions in department stores. Furthermore, the evidence available to us did not suggest that any of the parties’ brands are ‘must-have’ brands for department stores.
In any event, even if the merged entity were able to secure better terms from department stores, the evidence indicates that the effect on consumers may well be positive because the significant level of post-merger competition between womenswear retailers indicates that cost savings may be passed on to end consumers.
The activities of the parties overlap in the management of womenswear brands and the operation of retail outlets for their sale in the UK. The merger brings the following brands under common ownership or control: Oasis, Coast, Karen Millen, Jane Norman, MK and Principles and Warehouse. Out of all of these, we found that Oasis and Warehouse compete most closely.
Womenswear retail is a fragmented market, and the merged entity's share
of supply at a national level is low ([0-10] per cent, increment
[0-10] per cent). While Oasis and Warehouse are close competitors,
they will continue to face competition from a number of other competing
brands. We found that some aspects of competition may be local and the
evidence suggested that if any competition concerns were to arise, this
would be in local areas where Oasis and Warehouse are both present. Our
analysis of local overlap areas did not identify any locations where the
merged entity would not face significant competition, and in any case we
found that barriers to entry at the local level are relatively low. We
therefore conclude that the merger does not give rise to competition
The majority of third parties did not any raise competition concerns. A small number of third parties noted that the merged entity may have upstream buyer power vis-à-vis department stores; we found no evidence of this, inter alia, on the basis of the merged entity's low share of supply.
Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.
- Shoe Studio is a collection of seven brands, four of which are owned (Pied a Terre, Bertie, Roland Cartier and Roberto Vianni) and three of which are licensed (Nine West, Easy Spirit and Kenneth Cole).
- Some footwear is sold under the MK brand. Since the overlap in respect of footwear is insignificant it is not considered further.
- Source: the parties.
- Key competitors of the Karen Millen and Whistles brands include: FCUK, Phase 8, Hobbs, Jigsaw, Bromley, East, Episode and Monsoon.
- The analysis was centred on both the Warehouse and the Oasis outlets.
- The narrow competitor set was selected on the basis of evidence from the internal documents submitted by the parties as well as third party responses. It consisted of the following brands: Kew, Monsoon, FCUK, Morgan, Mango, Zara, River Island, Topshop, Miss Selfridge, Bershka, H&M and New Look.