Woolworths is in talks to sell its high-street business to company restructuring specialist Hilco for a nominal sum, illustrating the pain being felt by British store groups as they face up to the looming recession.

Paul McGowan, Hilco's UK chief executive, said that the company was in "very early stage" talks with the 99-year-old group, one of Britain's best known store chains.

An industry source had said the talks centred on Woolworths offloading its stores for a nominal sum.

Woolworths, which runs about 800 shops – including 37 in Yorkshire – and also has a profitable DVD publishing and distribution business, declined to comment.

Yesterday there was a report in a national newspaper that Woolworths was in talks to sell its retail business to Hilco for £1.

It reported that Hilco was reluctant to take the group's pension liability, with talks focusing on the level of debt to be assumed.

"Whatever leak was made to the paper yesterday (Tuesday) is a little previous shall we say," said Mr McGowan, who declined to comment further.

In August, Woolworths rejected a bid approach of about £50m for its retail business from a consortium led by Icelandic investor Baugur and retail entrepreneur Malcolm Walker.

Analysts at Numis said the Hilco scenario looked similar to the Baugur/Walker approach, but for £1 instead of £50m.

"The renewed newsflow confirms that Woolworths' retail arm, inclusive of its obligations, is viewed as a net liability," they told clients in a note.

They said that with the non-retail division having projected operating profit of about £70m, a group pension charge of £17m, overheads of £8m and an interest charge of about £30m, "the clean sale of the retail arm for £1 leaves precious little for shareholders".

Hilco is well known in UK retail circles after acquiring fashion chain MK One this year and subsequently placing it into administration.

It also bought up the debt of Allders in 2005 before the department store chain went into administration.

Hilco said its actions, including the provision of £15m of extra working capital, meant 30 Allders stores were sold and 3,500 jobs saved in the process.

Sanjay Vidyarthi, an analyst at Dresdner Kleinwort, said the talks suggested the position of Woolworths "must be critical", given the retailer is gearing up for its busiest trading period of the year.

However, John Stevenson, an analyst at KBC Peel Hunt, said in a note that he was doubtful a successful deal could be concluded.

A LONG STRUGGLE

Woolworths, which demerged from Kingfisher in 2001, has been struggling for years in the face of growing competition from supermarkets, online retailers and specialist players.

Its problems have been exacerbated in recent months by a rapid downturn in consumer spending, which has forced a string of retailers, including furniture retailers MFI and ScS Upholstery, into administration, a form of creditor protection.

Woolworths posted a record first-half underlying pre-tax loss of £90.8m in September on turnover of £1.11bn and scrapped its dividend.