By Sruthi Ramakrishnan

(Reuters) - Macy's Inc <M.N> said Terry Lundgren will step down as CEO next year and be succeeded by former chief merchandising officer, Jeff Gennette, as the department store operator tries to revive sales hit by competition from online and off-price retailers.

Macy's shares rose as much as 5 percent on Thursday on hopes that the change will breathe life into the venerable retailer, which has reported falling sales for the last five quarters.

Lundgren, 64, who has been the company's CEO for more than 13 years, will step down from that post in the first quarter of 2017 but continue as executive chairman.

Until then, Gennette, who was widely expected to be named CEO, said he would focus on Macy's stores, stocking them with in-demand products, increasing staff, and enhancing shoppers' experience through experiments such as better lighting.

"We are really going to focus on our stores at a greater level than we have over the past year," Gennette, 55, told Reuters. As CEO, he plans to expand Macy's beauty business, particularly through the Bluemercury salon chain it acquired last year.

As Macy's head of merchandising from 2009 to 2014, he focused on building Macy's accessories business, and handbags and watches remain among the retailer's top traffic drivers. In 2012, he also oversaw Macy's marketing efforts and, seen as a bright spot for the company.

"We think a new perspective and leadership could be invigorating," Morningstar analyst Bridget Weishaar wrote in a note, although she said the company's troubles were not the result of poor leadership.

Macy's, like other department stores, has been hit by falling apparel demand and a strong dollar that has discouraged tourist spending, as well as growing competition from off-price retailers such as TJX Cos Inc <TJX.N> and online-only retailers such as <AMZN.O>.

Lundgren launched a raft of measures over the past few quarters to counter falling sales, including shutting stores, opening off-price outlets. It also signed a joint venture with Alibaba <BABA.N>, a move in particular that raised concerns that Macy's might be spreading itself too thin.

The company has also tried to strike real estate partnerships, following pressure from activist investor Starboard Value LP.

Lundgren said Macy's would continue to explore such deals, but cautioned, "Many of these transactions are quite complicated and will take time to execute, so this definitely will go on beyond 2016."

The appointment of Gennette, currently Macy's president, is in keeping with Macy's history of naming its top merchandising executive as CEO. Lundgren is a former chief merchandising officer.

However, not all analysts applauded Gennette's promotion.

"He is still part of the old team that has managed Macy's during its period of decline," Neil Saunders, chief executive of research firm Conlumino, said in an email.

"That's great for stability, but probably bodes less well for innovative and fresh thinking, which Macy's is in need of."

Macy's sales nearly doubled during Lundgren's tenure and he helped establish Macy's and Bloomingdale's as national brands.

Macy's shares closed up 1.7 percent at $33.38.

(Reporting by Sruthi Ramakrishnan; Additional reporting by Abhijith Ganapavaram; Editing by Ted Kerr and Savio D'Souza)