Retail entrepreneur Malcolm Walker will take Woolworths back to basics and restore its appeal as a traditional variety store if he succeeds in buying it.

Contrary to speculation, the Iceland founder does not intend to introduce a significant food offer. Instead, he will jettison products such as phones and CDs to make room for ranges such as value homewares and toys to enhance Woolies’ family appeal, sources close to Walker said.

Adopting a similar strategy to that employed to revitalise Iceland, Walker plans to cut costs, smarten up stores and rebuild staff morale, it is understood. The success of that approach was shown this week when TNS reported Iceland had delivered its strongest market share growth in years.

An audacious approach from Walker, backed by Baugur, was rebuffed by Woolworths chairman Richard North earlier this week. North said the approach undervalued the retailer and would leave the parent company with unacceptable pension and lease liabilities.

Walker, who declined to comment, is expected to renew discussions with Woolworths and pension arrangements are likely to be a key negotiating point.

North told Retail Week: “There has to be sensible treatment of the pensions. We would be prepared to pay pensions of existing pensioners and those who have left Woolworths but not retired, but we would not be prepared to do it for existing employees.”

Last week, Woolworths named Steve Johnson as its new chief executive. North said “credible plans” were being laid to turn Woolworths around, but added: “Steve Johnson knows that if it is right for the company a deal would have to be done.”

Final capter for the Big Red Book?

Woolworths is reviewing its multichannel strategy, which could lead to the scrapping or scaling back of its Big Red Book catalogue in favour of chasing online sales.

The next Big Red Book, with 3,000 products, will go ahead as planned in October, but its future is uncertain.

A Woolworths spokesman said: “Changes will be made to how we present our multichannel offer.

“Catalogues, flyers and online marketing will continue to be a critical part of our strategy. We are testing new formats in all three.”

Verdict consulting director Neil Saunders warned: “The Big Red Book is a driver of footfall. Woolworths’ customers aren’t necessarily the kind of people who do their shopping online.”