Similar thing has happen at Spurs with Routledge. Maybe he isn't as good as the manager first thought?
I believe that Walcott needs time, he isn't an established 1st team player, he is a squad player, although his fee is of an established first team-player

.
Also, him going to the world cup and not getting a game, and then not being first choice at Arsenal has effected his confidence.
I can see him being loaned out next season...