Senior Wal-Mart executives are said to have been in the UK over the past month and are understood be close to a final decision on whether to make a formal offer for discount retailer Matalan. Neither company has commented on the reported takeover. Matalan has been seen as a potential takeover target for more than a year. The UK value clothing market has become increasingly tough, with the strong growth of the George clothing range, sold by Wal-Mart owned Asda, causing problems for many rivals. Market share figures from TNS leaked earlier this month showed that Asda's clothing sales had overtaken those of Marks & Spencer.

Asda has announced plans for a trial of a non-food general merchandise format which will sell clothing, jewellery, homeware, toys and electricals. The first store opens in Walsall this autumn, and most of Matalan's 178 outlet would be suitable for this format. However, Wal-Mart would need new planning consents to sell food at any of the stores.

The key to any sale of Matalan is founder and 52 per cent shareholder John Hargreaves. Matalan currently has a market value of around GBP840m, but Hargreaves would almost certainly expect a premium for the business, hence the GBP 1bn level at which Wal-Mart is reported to be considering its bid.

Matalan is due to issue a pre-close trading statement later this week, In July, the company said it had reversed a like-for-like sales decline, with like-for-likes up by 4.1 per cent in the 18 weeks to July 3. Total volume growth across the 18 weeks was 12.4 per cent, but average selling price declined by 8.3 per cent, reflecting the level of competition in the market. Meanwhile, Wal-Mart has started to see a slowdown in comparable sales growth in its US stores, creating a new impetus for the retailer to increase its international expansion programme.