Hay Street mall veteran Tony Barlow has threatened to quit the strip if the State Government runs a dual-track railway through it, as retailers set up a fund to oppose the plan.
Mr Barlow, who has sold men's fashion on the shopping strip for 35 years, said the railway would kill the shopping atmosphere.
He said it would turn the mall into a noisy and dangerous thoroughfare, shuttling shoppers through the retail precinct without stopping.
Mr Barlow, who sold his eponymous shop 15 years ago to open Platinum Menswear on the same street, said it would set the city back 20 years by undermining efforts to create a vibrant city.
He said entertainment such as buskers would vacate the mall if the rail went ahead on the site, discouraging shoppers from the area.
"It will be distracting, noisy and dangerous," he said.
Solid Gold Jewellers boss Peter Greene is setting up a fighting fund to oppose the State Government's preferred route.
Mr Greene said he had written to up to 200 retailers and landlords who would be affected by the decision to install a railway with carriages that were 2.5m wide and 40m long. The group plans to run a campaign calling on the State Government to choose another route, such as St Georges Terrace.
John Apps, the managing director of St Martin's Properties, said the group was angry the Government had nominated Hay Street without consulting those affected.
He said he was concerned a major US retailer who was considering a lease on a Hay Street shop could decide against it if the light rail went ahead.
"We can't believe what the State Government is proposing," he said. "Retail is already struggling as it is."