Yahoo Finance How a bitter sportswear rivalry tripped up the king of trainers
According to Peter Cowgill, the now-former executive chairman of JD Sports, when he was growing up in Bolton, Lancashire, his parents’ attitude was “nobody can beat our Peter at anything”. Yet this summer, the 69-year-old finds himself on the sidelines of a sportswear business that until recently he dominated.
Cowgill stood down in May after a series of scrapes with the Competition and Markets Authority (CMA) forced a boardroom confrontation.
Months earlier JD had been fined over his clandestine meeting in a car park with the management of Footasylum, a rival it had acquired but was banned from talking to about business during the resulting merger investigation.
A separate probe of allegations JD had been involved in a price fixing cartel for Rangers replica shirts was also reaching its climax, and another finding of unlawful practices against the FTSE 100 company, and another fine. A similar charge over Leicester kit remains under scrutiny by the CMA.
Despite a long run-up in which Cowgill went to war in public with the CMA over its opposition Footasylum deal, his downfall came as a shock to the retail sector. Over an 18-year reign he delivered a 14-fold increase in the share price of “the King of Trainers” and vanquished all rivals for the crown.
Yet for one, a certain Michael James Wallace Ashley, founder of the Frasers empire formerly known as Sports Direct, the humbling of Cowgill had been a long time coming. Ashley had suspected and complained of anti-competitive behaviour by JD for years, and now the regulator had agreed with him, up to a point. Now Frasers, led by Ashley’s son-in-law Michael Murray, will hope that Footasylum and Rangers will be exposed as mere tips of a monopolistic iceberg.
The Footasylum saga neatly captured and amplified the enmity.
For years under Cowgill, JD had comfortably outgrown Frasers by dominating the burgeoning market for streetwear, or “athleisure”, shoes and clothing. By repositioning sportswear as fashion in collaboration with the big brands Nike and Adidas, JD was able to charge twice or three times as much for a line of trainers or t-shirts that cost little or nothing more to make. Meanwhile Sports Direct, with a focus on discounting and stores that placed top brands alongside its budget own labels such as Karrimor and Lonsdale, was refused supplies of the lucrative “athleisure” lines.
After JD leapfrogged Sports Direct, as it was then named, to become Britain’s most valuable sportswear retailer in 2016, Ashley and Murray mounted a push upmarket in a bid to convince Nike and Adidas to deliver the goods. The “elevation strategy” meant heavy investment in new stores, refits and marketing, but did not reverse the tightening supply of streetwear.
Indeed, market leader Nike, which accounts for nearly 40pc of global sportswear sales, has an overt plan to reduce the number of retailers it supplies.
It aims to sell more directly to consumers and to work with only a handful of favoured third-party retailers such as JD who can help it preserve profit margins and do not discount. Earlier this year Nike cut supplies to the US-based chain Footlocker, for instance, wiping $950m from its Wall Street valuation overnight.
By 2019 Sports Direct had been on the wrong end of the trend for too long.
“These 'must have' brands hold an extremely strong bargaining position vis-a-vis the retailers within their supply networks and use their market power to implement market-wide practices aimed at controlling the supply and, ultimately, the pricing of their products,” it complained in a statement demanding firm CMA action.
Already, JD was on its way to even greater dominance. In the spring of that year it had acquired Footasylum for £90m. With 70 stores, the family-run chain had managed to maintain a niche in the athleisure market.
Unusually, Cowgill had opted to proceed with the deal without notifying the CMA in advance. According to documents reviewed by The Telegraph, he said privately that the move was not anti-competitive but that he had done so after promising a member of the Footasylum founding family who was gravely ill.
A JD spokesman declined to comment on that conversation but said: “JD obtained both legal and economist advice on the chances of the CMA clearing this acquisition in Phase 1 review and were ultimately happy to proceed.”
Despite the comments he made in private, Cowgill has publicly dismissed suggestions of personal favours on Footasylum. “I wouldn’t spend £90m for anyone. I couldn’t,” he said in 2020.
After a long battle during which the CMA was forced to investigate the deal and find it anti-competitive twice, this month JD was forced to sell Footasylum. Cowgill’s decision not to seek advance clearance meant that it retained control of the sale process. The ultimate buyer for just £38m, less than half what JD paid, was Aurelius, a fund specialised in making returns on distressed businesses.
Frasers, a serial acquirer of such assets itself, made an indicative offer of £100m according to documents seen by The Telegraph but was shut out of the process run by Deloitte. In response to an email from Frasers’ advisers asking for confirmation that signing an NDA would allow it to participate in the second round of the auction, the Big Four accounting firm delivered the bad news.
“Having discussed with JD today it does not intend to introduce any further parties to the process at this time,” it said.
Today JD remembers things differently.
“Frasers refused to sign the same NDA that all other bidders did and consequently never entered the process,” it says. “The CMA were kept updated at every stage and raised no objection to the process or indeed to the eventual outcome.”
It dismisses Frasers’ suggestions that consumers are being harmed by its increasingly exclusive relationships with big brands. The findings over Rangers kits are irrelevant to a global market, it argues.
“It is clear that the CMA do not agree with any Frasers claims in this respect,” a spokesman says. “The premium sportswear segment is a highly competitive global market both in stores and online and it is utterly false to try and link this segment to the CMA’s investigation in replica football kits.”
Cowgill’s relationships have allowed JD to go global, too. In 2018 in acquired the US chain Finish Line from under Ashley’s nose. Frasers had built up a 19pc stake as a bridgehead into the world’s most lucrative market but lost out to JD, believing that the powerful big brands had warned Finish Line against merging with it. There is no evidence to support such suspicions, however.
JD says: “The continuing global success of JD is about one thing. A relentless commitment to better understand than anyone what its core sports fashion focused and ‘street’ consumer wants. This allows JD to curate and deliver the right and highly differentiated product offering for its clearly defined target audience.”
The battle is not yet over, however. Frasers remains in contact with the CMA, which is monitoring the market. JD has appointed a more conventional big company leader in Regis Schultz to impose a new culture. Meanwhile, in between trips to Majorca this summer, Cowgill is still negotiating his exit package with the JD and its majority shareholders the Rubin family. Industry rumours have even linked him to a role with Footasylum.
“It is standard for exit agreements to contain non-compete clauses,” says JD.