LOS ANGELES — Wrapped in the music, lights and relentlessly red decor of Christmas at Macy's, Kathleen Kwiatkowski opened her wallet with a little pull from holidays past.

Like millions of other Americans, Kwiatkowski says she shops at the department store for its selection, generous coupons and easy returns policy. But in part, it's simply tradition.

"Macy's is Christmas," said the West Hollywood resident, 56, while examining a stack of knit tops at the Beverly Center store. "My mother used to take me to the New York store when I was a little girl."

Since the classic film "Miracle on 34th Street," Macy's has become synonymous with the holidays in the minds of many. This Christmas, amid a tough sales environment, the department store giant — second only to Sears Holdings Corp. by revenue — is hoping that nostalgia translates into a sales boost.

Amid the devastation the recession has wreaked on retail sales, the venerable chain has been trying to reinvent itself, tailoring its stores to specific regions, pushing its online presence and boosting its promotions to draw customers.

In the process, Macy's hopes to reverse the decadeslong decline in the department store business model that has seen many mall-weary people shifting their shopping habits to big-box discounters, free-standing stores and the Internet.

"It's a critical holiday season for Macy's. They have to turn things around," said retail analyst Michelle Clark of Morgan Stanley, who is neutral on the stock.

The Cincinnati company, which owns luxury retailer Bloomingdale's and operates 854 stores, is aware of the threat of becoming obsolete. With nearly one-third of its annual sales riding on the November-December season, Macy's is trying hard to stay relevant.

"Macy's as a department store is not just competing against other department stores," said John Gorham, senior vice president and director of stores for Macy's southwest region. "In today's world, whether it's specialty, whether it's discount or whether it's department stores, the name of the game is capturing wallet share from the consumer."

The recession, the reshaping of the company and the competition have kept Macy's financial situation volatile.

The company lost $35 million for the three months ended Oct. 31, even after slashing 7,000 jobs and closing about a dozen stores this year. Over the past eight quarters, its earnings have seesawed, swinging as high as $750 million in profits to as low as $4.77 billion in losses, a result of a write-down in assets.

In trying to reinvent itself, Macy's has been overhauling its merchandise structure — a move the company says will allow it to respond better to customer preferences and needs by location.

Under the initiative, called My Macy's, stores are grouped into small districts of about 10 to 12 locations each. Previously, the clusters were about twice as large yet had half as many managers, resulting in merchandise missteps such as not adjusting product sizes by location.

"There was just no physical way that you could get into the detail of what the customer was demanding when you were that big," Gorham said. "It was a problem."

The company also has put significant effort into its online presence — and it's paying off. Internet sales at Macys.com and Bloomingdales.com were up 21.1 percent in its most recent quarter and 15.6 percent for the year to date, the company said last month, although it didn't release exact online sales figures.

The merchandise improvements have cheered some industry watchers, who say Macy's is on the right track and that its long history and national footprint give it a boost over its competitors. Macy's stock is up 70 percent this year, compared with a 23 percent increase for the Standard & Poor's 500 index of major companies.

Although it closed 11 underperforming stores this year, the chain opened six and rebuilt two. Last month, it raised its financial outlook for the full year.

Analysts are cautiously optimistic. Half of those who follow the company's financial progress recommend that people buy the stock and half recommend that investors hold their shares, according to Bloomberg.

"Macy's is taking advantage of the recession. It's made some very tough decisions in terms of consolidating operations and streamlining its expense structure," said Bill Dreher, senior retail analyst at Deutsche Bank Securities who recommends buying the stock. "We like these changes and we like the direction the company is going."