Bloomberg News

Shares of Macy's (M - Get Report) surged Thursday after the embattled retailer unveiled plans to save as much as $550 million each year by reining in its widespread use of discount, which had taken a toll on its bottom line.

Macy's stock price rose 2.7% to $15.31 after the department-store giant laid out sweeping plans to restructure the way it does business in everything from conducting sales to handling inventory.

The Cincinnati retail giant said it would take a more targeted approach to discounts, which it had used to clear inventory. Macy's has shuttered 100 stories and laid off thousands of employees across the country as it struggles, along with other primarily brick and mortar retailers, with the growing shift toward online shopping.

Macy's, which saw comparable same-store sales grow by just 0.2 percent in the most recent quarter, estimates more targeted discounting could yield savings of $400 million to $550 million.

Macy's is also arming employees with handheld devices and trying out self-checkout kiosks, while also gearing up to roll out a new inventory system. Currently, inventory is shipped to all its stores at the start of each season.

Under the "hold and flow" system, a portion of that inventory will be held back and then delivered to stores where demand is highest over the course of the season, the company noted in its presentation to Goldman Sachs.

A pilot program testing the new inventory system boosted sales by 3% to 4%, the retailer said.

"We know that some of our customers respond particularly well to coupons while others do not," Chief Financial Officer Paula Price told investors at Goldman Sachs retail conference, Reuters reported.

"And so using data and customer analytics, we can become more precise on who we target with promotions and what offers we provide."