Nordstrom plans to close its store at Circle Centre mall, dealing a substantial setback for downtown Indianapolis.

The swanky department store chain helped launch a revival of the city's core when it opened in 1995 as an original anchor of the $320 million mall project.

But many of Nordstrom's most-sought-after customers now shop at the chain's newer store at The Fashion Mall at Keystone, and the crowds of convention visitors who shop at Circle Centre aren't picking up enough of the slack.

The Seattle-based chain was scheduled to announce the closure to employees at a mandatory staff meeting Thursday morning, a person familiar with the plans told IBJ.

Spokesmen for Nordstrom and Simon Property Group, which manages Circle Centre, did not respond to requests to discuss the impending closure.

Nordstrom will continue to operate its store at The Fashion Mall at Keystone, and it plans to open the first Indiana location for its off-price chain Nordstrom Rack this fall at the Rivers Edge shopping center at 82nd Street and Dean Road.

The downtown store will close July 31.

"We’re disappointed, but we understand Nordstrom’s business decision," said Marc Lotter, spokesman for Indianapolis Mayor Greg Ballard. "The company’s client base didn’t really match up with the convention and visitors business that’s coming into Indianapolis."

Lotter said the departure presents a "tremendous opportunity" for the mall to recruit a tenant or tenants that are a better fit for the market. He said it is too early to discuss whether the city would offer incentives to attract the right retailer.

The city originally enticed Nordstrom to open in the mall by offering a new building and tenant improvements at no upfront cost to the company. How much Nordstrom pays in rent is not spelled out in publicly available documents.

Anchor tenants are considered paramount to attracting shoppers to a mall’s smaller stores, so advantageous deals are not unusual.

Simon's preference is to land a replacement anchor such as Macy's that appeals to a broader mix of customers than Nordstrom, industry sources said. Another possibility would be to break up Nordstrom's 210,000 square feet to accommodate a few mid-size tenants.

Nordstrom's Fashion Mall store, which opened in 2008, drew customers away from the downtown store, and the addition of Nordstrom Rack will give shoppers even more reason to "go north,” said Mark Perlstein, a principal in locally based Sitehawk Retail Real Estate.

Perlstein expects Simon would break up the Nordstrom space to accommodate a few box retailers, including perhaps Best Buy or Bed Bath & Beyond.

The potential loss of Nordstrom is an outcome the mall's owners and city leaders have feared for years.

The risk of Nordstrom opening a second store in the market was concern enough for the mall's developers that they extracted an unusual concession requiring Nordstrom wait at least five years before opening another Indianapolis location.

There's no question Nordstrom's departure is a blow to downtown.

Circle Centre and its anchors supported the city’s core, bolstered the convention business, provided jobs, and inspired other investments downtown, former Mayor Bill Hudnut told IBJ for a story in 2010.

“It might be the equivalent of losing the Pacers if we lose Nordstrom,” Hudnut said at the time. “To my thinking, the mall is one of the linchpins of the whole downtown, and Nordstrom is the mall’s linchpin.”

Circle Centre generated a profit of $9.1 million in 2010 on revenue of about $23.7 million, according to an annual report on Circle Centre that Simon filed with the city May 19. The report does not break out the performance of anchor stores.

Occupancy at Circle Centre has held steady at about 93 percent for three years, excluding the troubled fourth floor, which was only 67-percent occupied in 2010.

Sales per square foot rose about 3 percent in 2010, to $340, still well below the $406 per square foot the mall achieved in 2007.

The city owns the land under the structure and paid more than half the cost of building the mall. The building itself is owned by a partnership of 20 mostly local companies, including Simon.