The planned £700m Tithebarn regeneration scheme for Preston city centre has been abandoned after John Lewis pulled out.
A council spokesman said the scheme was "no longer financially viable and will not now be going ahead in its current form".
John Lewis was to have been the scheme's "anchor store" - it was hoped it would attract other retailers.
The council said it would now consider a less ambitious scheme.
The store's decision to withdraw means that the Tithebarn scheme that was originally proposed at a time of significant economic growth is not now deliverable.
'Deliverable plan B'
Leader of Preston City Council, Councillor Peter Rankin, said: "We are in the middle of one of the worst economic and financial situations since the 1930s and it is now clear that the large-scale comprehensive Tithebarn scheme, that received planning permission as originally proposed, is financially unviable.
"The world has simply changed and we have to move on and be realistic about what can be achieved.
"Our aim though is to still re-generate the Tithebarn area of the city."
He said the council and its development partner Lend Lease were rethinking the proposals.
"The opportunity that now presents itself means that we can review all our buildings and assets in a new way," he said.
A spokesman for John Lewis Partnership said: "John Lewis can confirm it has withdrawn from discussions with Lend Lease on the Tithebarn development."
Chief executive of the North and Western Lancashire Chamber of Commerce, Babs Murphy, said: "You cannot help but think what might have been, but we are where we are.
"There are still key investors committing to the development of Preston and this presents an ideal opportunity for the private sector to engage in the development of a realistic and deliverable plan B."
She said the chamber was ready to mobilise businesses to unite behind a "prioritised action plan."