Aubameyang has been the club's primary threat since arriving from Borussia Dortmund for a club-record £55m fee in January 2018, scoring 49 in 74 Premier League appearances.
However, the Gabon international is yet to commit to new terms and Arsenal face losing him with his contract set to expire in 2021.
Club chiefs have previously stated an intention to offload players with just one year left on their contracts in a bid to avoid a repeat of the move which saw Aaron Ramsey join Juventus on a free transfer last summer.
That stance will be tested this summer if Aubameyang continues to stall on a new deal, and Barcelona are among those reportedly primed to pounce if the Gunners look to cash in at the the end of the campaign.
Arsenal have been linked with a move for Celtic's Odsonne Edouard should they need to plug an attacking avoid this summer, but Nicholas has doubts over that proposed move.
“Arsenal are in a horrible position when it comes to sorting out Aubameyang's contract offer. Barcelona and Real Madrid have been mentioned and they have the funds to buy him," Nicholas told Sky Sports.
“There's been a lot of talk of Aubameyang being sold, but Edouard would not be the answer."
Standard Sport's scouting profile on Edouard identified one of his key strengths as a target man in the mould of Sergio Aguero, and Nicholas thinks such a signing will leave Mikel Arteta short of certain attributes in the final third.
He added: “He plays differently, more like Lacazette. Aubameyang is about pace and movement. Although he likes to play the No9 role, he does not play it as Edouard could. Similarly, Edouard could not play in the position that Aubameyang does, out wide on the left.
“He wants to be the key figurehead of the team as the link man through the middle. For that reason, I do not see Arsenal targeting him as a replacement for Aubameyang.
“Edouard is too similar to Lacazette, and if he was to move, it paints a different picture. Edouard would then fit into the Arsenal team as the No9. You would still need to give him time as he's not been playing every week against Premier League quality.
“His attitude has improved sufficiently enough to tell me he will become a top player but I am not quite convinced teams will yet be looking at him as a £40m player. But the current market, with the coronavirus likely to impact the value of players, this will play a crucial part.”