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With Macy’s stock down to yearly lows, Terry Lundgren did not fall on his sword but 899 employees working in nine stores in Indiana, Ohio, Louisiana, Oklahoma, Utah and Texas were run through, losing their jobs.

Okay, nine stores is no more than 1 percent of the total, and the company says it intends to open five new stores in 2008.  But after a horrendous Christmas, Macy’s needs fewer fall guys and a realistic strategy if it intends to survive in its present form.  In one short season, Macy’s went from being a prestige department store contender to a discount department store locked in death-defying combat with JCPenney, Kohl’s and Target.

Managements at Penney’s, Kohl’s and Target have more efficient warehousing, back offices and support services that give them pricing flexibility.  This is not the case at Macy’s where regional chains from both Federated and May Company have not been totally integrated, say sources.  Macy’s lower pricing strategy has heavily come from strong arming its vendors.

If trading down this Christmas was not a fad, Macy’s will need a strategy to support its merchandising efforts.  By using coupons and frequent sales, higher-end lines such as Coach, Ralph Lauren and most beauty vendors will be hurt.  In turn, they will be forced to look at adding other retailers or building more freestanding outlets.

How can full-price vendors compete?   Bargain-conscious consumers searching for lower-end merchandise generally are less interested in full-price products.  Fashion customers will shop Nordstrom and other retailers that feature higher-end merchandise and better trained sales clerks.

With the decision to close nine stores several days after a bad Christmas, one has to ask if Macy’s will have to readdress its whole roster of stores by mid-year.  Most certainly, there are underperforming malls that lost traffic this holiday and if consumers continue to shop in strip centers and off-mall locations, Macy’s will have to close additional stores.  The question is how many?