The Merseyside club have been linked with a move for the unsettled England international.
"Liverpool need players who are proven and Theo Walcott's not proven," Nicol told talkSPORT. "He's too inconsistent. What they don't need now is another inconsistent player.
"They need someone who every match you know exactly what you're going to get. They need someone who's going to get you goals and be consistent every game and that's not something you can say about Theo, as great as he is."
Walcott comes to the end of his contract at the Emirates next summer.