Affected market: Retail sale of clothing
The OFT’s decision on reference under section 33 given on 1 July 2005. Full text of decision published 13 July 2005.
Please note square brackets indicate information replaced by a range at the request of the parties.
Pentland Group plc (Pentland) is a brand management holding company which owns a range of sports fashion and outdoor brands (including Speedo, Kickers and Ellesse) and distributes branded clothing and footwear to retailers. It also owns eight retail stores in the UK (including single brand stores and multi-brand discount stores). Pentland’s group turnover for the last financial year was approximately £320 million.
The John David Group plc (JD) is a sports and leisure wear retailer. It has over 300 stores across the UK, principally trading as JD Sports, selling a wide range of clothing and footwear from all the major sports brands and its two own-label brands. JD’s UK turnover for the last financial year was approximately £471 million.
On 11 May 2005, Pentland announced that it had made a public bid (through a wholly owned subsidiary) for the entire issued share capital of JD. The offer closed on 22 June 2005. Prior to the offer, Pentland owned approximately 11 per cent of JD. [As a result of the offer, Pentland has acquired in aggregate 57 per cent of the shares in JD(see [note 1]) The administrative deadline expires on 22 July 2005.
As a result of this transaction, Pentland and JD will cease to be distinct. The UK turnover of JD exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. Arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.
The parties overlap in the retail supply of branded clothing and branded footwear.
The parties submit that the appropriate product frame of reference is no narrower than the retail supply of branded clothing and branded footwear. The impact of this transaction on competition has been analysed both on this basis and on the narrower frames of reference of branded sports clothing and branded sports footwear respectively. Given no competition concerns arise at even the narrowest level, it has not been necessary to conclude on the product market definition.
The relevant geographic scope could be as broad as UK-wide, as clothing retail chains generally operate across the UK. However, there might also be aspects of local competition. On this basis, and consistent with the OFT’s approach in a previous case (see [note 2]), the effect of the merger on competition has been analysed both nationally and at local level.
The parties’ combined national share of supply for retail sales of branded clothing and footwear collectively is [less than 10 per cent] (increment less than  per cent, see [note 3]). Taking branded sports clothing and branded sports footwear separately, the merged firm’s combined share of supply based on retail sales would be approximately 10 per cent (increment less than  per cent) in each case (see [note 3]).
None of the third parties that were contacted by the OFT considered that the parties are close competitors nationwide, due to Pentland’s small number of stores, with strong competition being provided to JD nationally by a number of large chains (such as JJB and all:sports).
Pentland and JD both operate stores in four localities: London; Nottingham; Mansfield; and Cheshire Oaks. In each of these locations there appear to be sufficient post-merger constraints to ensure no substantial lessening of competition as there are a host of other shops with similar sports and leisure wear offerings.
Barriers to entry and expansion
The parties submit that barriers to entry and expansion into the branded clothing and footwear retail sector are low on the basis that costs for shop fitting and stock are not significant, and there are a number of suppliers from which retailers can obtain branded products.
Views from third parties were mixed, however, on the extent to which retailers can easily gain access to different clothing and footwear brands. Given the lack of horizontal issues in this case, however, it is not considered necessary to reach a firm conclusion on barriers to entry.
Buyers are individual consumers and do not have any countervailing buyer power.
Pentland supplies branded clothing and footwear to retailers, including JD. The parties estimate that Pentland brands account for less than 10 per cent of JD’s branded sales (see [note 3]). It is not considered that Pentland will have any incentive to seek to use its vertically consolidated post-merger position to refuse access either to its brands (by retailers other than JD) or to JD’s stores (by other brand suppliers), given the low shares involved and the competitive nature of this sector. In addition, third parties did not raise this as a potential concern.
THIRD PARTY VIEWS
Third parties were generally unconcerned about this transaction.
The parties overlap in branded sports and leisure wear at the retail level. Their combined shares of supply are modest (no more than 10 per cent) at the national level on even the narrowest product market definition and they face competition from numerous other clothing and footwear retailers both nationally and in those local areas where they both operate. The increment to the shares of supply will also be small (less than  per cent) in each case as a result of the transaction. In respect of vertical issues, the evidence suggests that Pentland would not have any incentive to seek to foreclose access to its brands or JD’s stores following the transaction. Therefore, the transaction is not considered to give rise to any significant horizontal or vertical competition concerns.
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.
- Insertion added at the request of the parties.
- The OFT’s decision on reference given on 23 September 2004 in relation to the completed acquisition by TBH Retailed Limited of USC Group Plc.
- Based on the Fashion Trak Report for the 52 weeks ending 12 December 2004 (Taylor Nelson Sofres), and estimates provided by the parties.