The second best shopping day of the holiday season didn't come until after the festivities ended. Dec. 26, 2009 wasn't good enough to top Black Friday, but data from ShopperTrak shows that it did shoot past the last Saturday before Christmas, which is usually among the top days of the holiday season. This year, that Saturday wasn't able to realize its potential because of a snowstorm that smacked the East Coast.

Store traffic fell 6.6% from 2008 for the day after Christmas, but sales still reached $7.9 billion. Analysts expected the the first post-holiday shopping day to assume more importance, largely because of the storm a week earlier

No, don't expect to see windmills and solar panels -- consumers are leaning toward a different kind of green this holiday season: cash. Rather than hit their credit cards, shoppers will only be spending money they have (and can see and touch). Seventy-one percent of consumers are looking to cash and debit cards as their primary form of payment for holiday shopping this year, which the National Retail Foundation pegs as the highest level since 2005.

This could be a problem for the retailers.

Sure, you'd think that the merchant fees on credit cards make cash more attractive to the sellers. But, Ellen Davis, a spokesperson for the NRF, says that most retailers have found they can talk credit card buyers into up-sells more easily. That leads to a bigger basket size and more revenue. Done successfully, it should comfortably absorb the impact of merchant fees. James Roberts, a marketing professor at Baylor University, adds that using plastic makes consumers more likely to buy at all, let alone more.

Okay, so we all know retailers are looking for every holiday edge this holiday season. Consumer spending's been down, and the sprint to Christmas offers the last chance to pump up those Q4 numbers. They are trying out new ways to reach and engage shoppers, particularly via social media. But, the most effective way to bring new customers into the fold -- and keep them around for a while -- may be to pick up the shipping tab. It's pretty old fashioned, but it's best by test.

Once considered a bonus, a special effort, free shipping isn't really optional any more. If a shopper has to pay for shipping from one retailer, he may move on, knowing that plenty of others aren't charging for it. Rebecca Lieb, vice president at Econsultancy, a digital marketing news publisher, notes, "You're delighted the first time you get free shipping, but you expect it the second time."

And, free shipping shouldn't come with any strings attached, according to Shop.org's eHoliday Study (Shop.org is the e-commerce division of the National Retail Federation). Five years ago, 25% of retailers didn't charge for shipping during the busiest shopping day of the year. This year, however, 57% are planning not to hit their customers up for the extra cash, making this cost just another expense associated with running the business during the holiday season.

Consumers are finally spending more, with September posting the first gain in more than a year. The International Council of Shopping Centers and Goldman Sachs (NYSE: GS) found that retail sales inched 0.1% higher last month. It doesn't seem like much, but a gain when you anticipate a fall is good news magnified. But, it came at the expense of great deals and other tools to entice somewhat hesitant customers into stores.

Kohl's (NYSE: KSS) and Limited Brands (NYSE: LTD) reported sales increases in September for stores open more than a year. J.C. Penney (NYSE: JCP), Macy's (NYSE: M) and Target (NYSE: TGT) posted declines, but they were better than expected. Delayed school openings thanks to a late Labor Day helped push to September sales that might have occurred in August otherwise.

Of course, all eyes are on the coming holiday season. The National Retail Federation forecasts U.S. consumer spending of $437.6 billion – up only slightly from $433.7 billion four years ago. So, we still have a lot of ground to make up before we can celebrate a recovery. As long as the situation is staying steady, though, we'll at least have a solid starting point.

A retail stock? In this economic climate? Indeed, it seems implausible, but an argument can be made -- for those investors who can tolerate moderate risk -- for JC Penney (NYSE: JCP). Here's how:

The recession and the new era of the 'frugal consumer' have really taken the wind out the retail sector's sails, but JC Penney is still standing, and if indeed the recession is beginning to bottom, institutional investors will start to position themselves in the sector in a big way. Indeed, some big investors already have, with JCP's shares already having accelerated out of a $15, 52-week low to trade around $25.

Two weeks ago several analysts speculated that over 70,000 stores could close in the first half of the year and that bankruptcies could force many retail chains to close.

The pessimism about the industry is only growing and it raises the question of whether saving retail is akin to keeping unemployment at reasonable levels. If retail collapses much further, a million jobs could be lost fairly fast.

Adding to the concern about the sector, The Wall Street Journal reports that "Drained by the worst consumer-spending slump in decades and burdened by debt, U.S. retailers are expected to begin a wave of post-holiday bankruptcy filings." That is old news. The way the ripple effect works is not.

Unemployment is rising at over 500,000 jobs a month across all parts of the economy. If a typical store employs ten people, closing 70,000 stores increases the pool of the jobless by 700,000 people all by itself. That does not include the failing of businesses that support retail whether they be in the real estate industry or in the parts of the economy that supply stores with everything from clothing to hardware, books to consumer electronics. Looked at that way, the retail industry could touch the jobs of one million people before the middle of the year.

One thing that the Obama plan does not address is how to keep stores open. There are no tax credits for people to move back to shopping. There are no programs to keep store leases from default the way there probably will be for home mortgages.

A failure to address the retail crisis may end up being remarkably expensive.

Douglas A. McIntyre is an editor at 24/7 Wall St.

If you made a bet on the specialty retailers leading up to the first $600 taxpayer rebate stimulus package, you got hammered.

Talk about a government plan backfiring big time.

That $300 billion in checks that fell out of the sky from government helicopters back in the March to May timeframe didn't find its way to the malls at all.

Instead, people paid down credit card debt, and tuition, medical and other bills, leaving little for spending on non-essentials.

The result was a litany of store closings nationwide, with several old-line, brand-name retailers going out of business.

It's game over for names like Circuit City (OTC: CCTYQ), Cache (NASDAQ: CACH), Talbots (NYSE: TLB), J. Jill, Wickes Furniture, Levitz, Bombay, Linens 'n Things, Movie Gallery, Wilson Leather, KB Toys and The Sharper Image.

Traders that leveraged into darling names, like hedge fund idol Eddie Lampert's Sears Holdings Corp. (NASDAQ: SHLD), got smoked. Shares of SHLD were trading at $105 when the checks when out. Today the stock is around $40.

Even Costco (NASDAQ: COST) -- the obvious slam dunk, aside from Wal-Mart (NYSE: WMT) -- got slammed, falling from $75 to $45 following the so-called stimulus package.

Macy's (NYSE: M) didn't do too well in its second-quarter according to the earnings report, but it did beat profit expectations. Net revenues saw a decline of 3%, coming in at $5.7 billion. Adjusted net income from continuing operations was $0.29 per diluted share. According to this article, the call from the wizards of Wall Street was for $0.19 per share.

That's quite a beat, I'll grant you, but there are some caution signs investors must read regarding Macy's. As the article mentioned, the outlook isn't that great, and the retailer doesn't expect much from same-store sales as it goes into the autumn. In fact, sales should either be flat or will decline slightly. Same-store sales represent an important metric for retail chains, and if that metric can't be delivered, then investors need to take notice. For the quarter, comps were down a little over 2%. Over the last six months, comps were down by roughly the same amount.

Net cash provided by operating activities actually went up 44% to $592 million. The gross margin also improved. Cool stuff, perhaps, but they still don't change my bearish inclination toward the company. Macy's is still trying to turn itself around and become a player in retail, but it will be tough considering the economic challenges that the entire industry is currently facing. It's not going to be a strong holiday season for the company, and in terms of investment ideas, I'd still look at Wal-Mart (NYSE: WMT) or Target (NYSE: TGT) in the retail sector. I don't see any reason to put money to work in Macy's (some do, though, since the stock is up almost 2% as I write this, and it has done very well over the last month, according to the AOL Finance snapshot).

Disclosure: I don't own any company mentioned; positions can change at any time.

MOST NOTEWORTHY: The U.S. retail sector and Occam Networks were today's noteworthy upgrades:

• Bernstein upgraded the U.S. retail sector to Overweight from Market Weight on valuation, as they believe shares now reflect any likely deterioration in earnings growth following the recent sell-off and that further downside is limited even in the event of a recession. In conjunction with the sector upgrade, Bernstein upgraded Lowe's (NYSE: LOW), Home Depot (NYSE: HD), Bed Bath & Beyond (NASDAQ: BBBY), Williams-Sonoma (NYSE: WSM), Kohl's (NYSE: KSS) and Macy's (NYSE: M) to Outperform from Market Perform.
• Merriman upgraded shares of Occam Networks (NASDAQ: OCNW) to Buy from Neutral on valuation and the company's contract win with Fairpoint Communications (NYSE: FRP). They believe shares could trade back toward the 1x revenue level, or $5-7 per share.

OTHER UPGRADES:

• RBC upgraded Suncor (NYSE: SU) to Outperform from Sector Perform.
• TD Newcrest raised Provident Energy (NYSE: PVX) to Buy from Hold.
• JP Morgan upgraded Netflix (NASDAQ: NFLX) to Neutral from Underweight and NYMEX (NYSE: NMX) to Overweight from Neutral.

All eyes will be on Sears Holdings (NYSE:SHLD) next Thursday when it reports Q3 earnings. One could call it a "multi-tiered" evaluation, as SHLD's report has meaning on several levels.

First, there's the company-specific turnaround story. Traders and analysts will want to see if the momentum from chairman Eddie Lambert's company restructuring continued in Q3. Lambert took on the difficult task of closing underperforming stores – many of which were long-standing, well-regarded stores in their communities – while also rightsizing SHLD's workforce, and integrating the acquired Kmart discount outlets.

Then there are the Sears' retail sector implications: analysts will use Sears' Q3 report as another data point/barometer regarding the U.S. retail sector's health heading into the pivotal Q4 holiday shopping season, For Q3, Sears, which traded Thursday at about $174.75, is expected to post modest flat-to-modest-growth in same store sales of about $11.8B on EPS of 98c.

Finally, there's the old economy / new economy dimension. The Sears restructuring effort serves as a case study regarding the ability of an old economy retail chain to make the transition to the new retail world of shopping online and viewing dazzling displays of products via streaming video right on your pc. Wall Street will want to see some progress regarding online traffic and sales versus Sears' primary competitors, JC Penney (JCP), Target (TGT), and Wal-Mart (WMT). A failure to show a modest improvement in online sales and traffic may give Wall Street cause for concern regarding Sears' ability to attract online shoppers in the decade ahead.

Hence, from a variety of standpoints, Sears' Q3 report next week will be awaited with keen interest, and cautious optimism, that better days are ahead for both shoppers and investors.

Post provided by Joseph Lazzaro and TheFlyOnTheWall.com (subscription required).