David Prosser's Outlook: Seven million reasons to get it right at Woolies, but success is still a long shot

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The Independent Online

Steve Johnson certainly has every reason to give it his best shot when he takes the helm at ailing retailer Woolworths. The former Focus DIY boss stands to make £7m if he hits performance targets set for him by Woolies chairman Richard North.

The package is a generous one, but no more than will be deserved should Mr Johnson confound Woolies' critics, many of whom believe the retailer is already a busted flush.

Is Mr Johnson the man to do the confounding? Well, having been given the job, he deserves a fair crack of the whip but shareholders studying his CV will have some anxieties. It's certainly fair to say that the new chief executive is not a creative ideas man. His background is one of consultancy, process engineering and the like rather than a grand vision. No matter, says Mr North – Woolies is now a company in need of a turnaround specialist and that's what Mr Johnson brings from his time at Focus DIY.

Unfortunately, that argument doesn't quite stack up. While it's true that Mr Johnson did manage a strategic review of Focus's business, this culminated in the sale of the business to private equity concern Cerberus for the princely sum of £1. Caught out by tough times in the DIY market, Focus sales fell 5 per cent during Mr Johnson's last full year in charge and when Cerberus took control of the business last July, he left the company.

Still, Woolies is a different business and Mr North insists it has a viable future, with the focus on its small and medium-sized stores. Nor does the retailer feel uncomfortable with its about-turn on the sale of its 40 per cent stake in 2entertain, a joint venture with the BBC, which it is now keeping having realised no one would pay what it had hoped for.

However, it's hard to share the retailer's faith. While Woolworths blames the credit crunch and the consumer slowdown for its woeful performance this year, the truth is that its sales have been significantly worse than other leading retailers. This at a time when you might have expected better results from the bargain basement outlets that Woolies stores have become – after all, the discount sector of the retail sector has been a major beneficiary of the squeeze on consumers' incomes.

Nor is this is a business that simply needs a bit of tinkering. Cost cuts, supply chain improvements and so on – the skills for which Mr Johnson is best-known – will help with margins, but what Woolies really needs to do is to persuade more people to venture into its shops and to get their wallets out once inside. The retailer's loyal but dwindling fan club is not sufficiently large to sustain it.

It's hard to resist the notion that shareholders' best-hope of a little bit of return from Woolworths is some sort of takeover approach – maybe from Ardeshir Naghshineh, the millionaire entrepreneur who already owns 10 per cent of the company. It's possible Mr Johnson has already had the same thought, having negotiated an unusually long notice period of two years in his initial contract.

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