The West Valley Mall will soon welcome a Macy’s department store, following a unanimous City Council vote Tuesday, June 15.

All five council members in a special session approved giving $2.75 million in city money to the department chain so it can renovate a 100,000-square-foot space vacated by Gottschalks in June 2009. City staff and mall ownership anticipate that Macy’s will open its doors by October, in time for the winter holiday shopping season.

The city money — which comes from developer fees collected after a settlement several years ago — will be augmented by $4.2 million from the owner of the mall, General Growth Properties.

As part of the agreement, Macy’s is contractually obligated to lease the store at the mall for no less than 10 years — a concession on Macy’s part that City Manager Leon Churchill said is pretty much unheard of in the retail industry.

The plan put forward by city staff and approved at Tuesday’s meeting envisions that sales tax receipts from Macy’s will pay back Tracy’s investment within 20 years at the most, as well as provide a boost to other mall retailers and the northwest corner of the city in general.

“This is the game-changer that the city of Tracy has needed for a long time,” said Gary Fields, general manager of the West Valley Mall.

Council members were unanimous in their enthusiasm as well as their vote, with all praising the deal.

“I think this is definitely something that needs to be done,” said Councilman Steve Abercrombie.

Mayor Brent Ives said it’s a decision that shows the city is serious about economic development.

“If the Central Valley’s going to recover, it’s going to start right here in Tracy,” Ives said. “You can see signs of it. … I just didn’t think it would come during one of the worst economic downturns in decades.”

Paul Chase of General Growth, which recently filed for bankruptcy, was at the council meeting and agreed that the coming of Macy’s is a great thing for the mall and affirms the company’s commitment to the area.

“Tonight’s a big night for us, a big night for the city and a big night for the mall,” Chase said.

Why Macy’s? Why now?

According to Fields, Chase and the mayor, when the West Valley Mall opened in 1995, there was one question about the new outlet: Where’s the Macy’s?

“I know that since the mall was even thought about, there was always the question of, ‘Is there going to be a Macy’s there?’” Ives said.

Fields and Chase both said that the mall’s and General Growth’s studies back up the mayor’s sentiment that locals would respond to a Macy’s nearby. The retailer is a favorite shopping spot for a majority of people who also shop at the Tracy mall, Chase said .

But it’s not just data that drove the choice to bring the national retailer to the city, according to Chase. Macy’s is a “fashion anchor” — a signature tenant that offers high-quality merchandise — of the sort West Valley Mall sorely needs to help boost its flagging fortunes.

“The one thing we always needed was to bring a Macy’s to this center,” he said.

Hoping for a turnaround

A quick Tuesday tour of the mall’s north wing — formerly anchored by Gottschalks — showed some of the challenges facing mall management and city officials as they try to reverse a downward trend there. Six of eight storefronts closest to the future Macy’s were closed or vacant.

“The vacancy rate of West Valley Mall, as I understand, is 20 to 30 percent,” Churchill said at Tuesday’s meeting, “and if it reaches 40 percent, you’re in real trouble.”

He and members of the council said having Macy’s in the mall could significantly turn around its economic fortunes. Councilman Mike Maciel likened it to irrigation for a desert, and Councilwoman Evelyn Tolbert said infusing new life into the mall is imperative to maintaining it as an economic engine.

“I think the timing is right (for this deal),” Tolbert said before the council’s decision. “I think if we wait and put it off any longer, we might be past the point of no return.”

Vanessa Castanon, the manager of the nearest open shop to the old Gottschalks, a trendy clothier called Styles, said Tuesday that Macy’s would be an extremely welcome addition.

“I think it’s great — it’ll bring more people here,” said Castanon, who’s been with Styles for three years.

She said fewer people visit her wing of the mall since Gottschalks departed.

Churchill said that, besides the $150,000 to $220,000 in annual city sales tax revenue Macy’s is expected to “conservatively” generate, it should boost sales for retailers like Styles.

“We fully expect sales for spaces adjacent to that (Macy’s) space to also increase,” he said.

The renovation of the old Gottschalks will also generate an estimated 85 jobs, while a report issued at the council meeting anticipates Macy’s operation will create 362 part-time and full-time jobs.

Not the best move?

But the coming of Macy’s likely won’t be a panacea for all that ails the West Valley Mall — let alone the local economy.

Ross, the discount clothing store toward the southern end of the mall, will depart for another location in Tracy in March 2011, leaving a large vacant space near the Target entrance.

And according to Jeff Michael, director of University of the Pacific’s Business Forecasting Center, the city’s strategy isn’t necessarily helpful to the region.

Moves to draw in retailers like Macy’s, Michael said, can change where sales tax is collected — at the expense of nearby communities — but don’t necessarily boost the overall economic strength of a region.

“Retail sales are actually a residual of a healthy economy, not the cause of it,” Michael said.

He added that San Joaquin County’s long-term economic health would be better served if cities showed more collaboration and engaged in less provincial competition.

“It would be more beneficial in the long run if we saw more joint planning within cities of the region,” he said, instead of fighting one another for a relatively limited pool of retail dollars.

Bob Rickman, who is running for a seat on the City Council, also expressed skepticism about the ability of a Tracy Macy’s to succeed at its present size, as the Macy’s stores in Pleasanton and Modesto would be larger.

“It just seems that Tracy settles. It shouldn’t,” he said, adding that Macy’s should be allowed to expand in the future if the opportunity arises.

Still, several West Valley Mall visitors expressed excitement about the City Council’s decision to help Macy’s set up shop.

“It’s wonderful,” said Andrea Anderson, a Tracy resident since 2004 who goes to the mall at least twice a week.

Anderson said Macy’s has a reputation for quality products and would be a big boost to the mall.

“It’s the best place to shop for wedding presents,” she said.

Making the case for Macy’s

Churchill argued that even those who don’t shop at the new store should see substantial benefit from a more successful West Valley Mall. Stronger sales in the mall, not just at Macy’s, would be a boon to Tracy residents.

Tracy has seen sales tax and property tax revenue — the two drivers of its general fund, which pays for police and fire services, among others — decline in the past few years.

The city’s 2010-11 general fund budget, which was OK’d before the Macy’s deal on Tuesday, will use $4.8 million in reserve money to plug a deficit between what the city takes in via taxes and what it spends on operations.

Churchill said pumping money into the mall on a one-time basis is a way to help build a stronger future sales tax base. Council members agreed.

“I think it’s a great idea,” Maciel said before casting his vote Tuesday. “It is not without risk, but I think the risk is minimal. …

“The tight spot we’re in right now is because of lack of revenue, and we need to find a way to generate revenue. This will help that revenue flow.”

However, Churchill cautioned council members that the strategy isn’t a cure-all.

“This incentive should not be a regular fixture in our economic development tool box,” he said.

Source of the city’s contribution

The $2.75 million fronted by the city will be drawn not from the general fund but from fees collected earlier this decade from a settlement with builders of various developments under the 1987 residential specific plan, according to city staff reports.

That money can’t be used for ongoing expenses, such as funding the police and fire departments, Churchill said, but only for one-time outlays.

The city used sizeable chunks of the residential specific plan money, Ives said last week, to pay for various “stimulus” efforts, including a $1 million fund for small-business loans, master planning for business and industrial development west of the city, and $500 gift cards given out in 2009 to those buying new cars at the Tracy Auto Mall.

And, now, it will set up what city officials are touting as a “high-end” retailer in the West Valley Mall.

“Basically, we’re using it for economic development,” Ives said.

He added that, while there are other projects the city could spend the money on, none would have such a large impact.

After the $2.75 million is spent, the residential specific plan fund will be nearly exhausted, Churchill said.

But the hope is that the sales taxes and other economic activity generated by Macy’s will build a source of renewable revenue for the city, as well as provide residents both in and out of town a more attractive place to shop.

“We obviously expect a return on investment,” Churchill said last week. “Bottom line is, increased sales tax revenue increases the city’s ability to fund police, fire and other traditional services from the city.”

• Contact associate editor Jon Mendelson at 830-4231 or jmendelson@tracypress.com.