Newsflash: We're in a recession, and free-spending consumers are going the way of the dodo.

In 2009, retailers will probably become even less popular than homebuilders were in 2008 -- perhaps deservedly so. Americans arguably spend too much; if so, we probably have too many retailers, operating too many storefronts, all servicing our unhealthy national compulsion to consume, consume, consume.

But when the post-recession dust settles, I bet you'll still find a store or two left standing. Your mission: Figure out who tomorrow's survivors will be -- today.

Comps, turns, and clutter
But how do you learn today what to expect tomorrow? Mainstream media outlets do a fine job of giving you the month-by-month comps rankings, but not much more. Fools, who look a bit more deeply into these things, will tell you that metrics like quarterly inventory turns are more instructive. But figuring those out requires spending some quality time with your trusty calculator. Wouldn't you like a quick metric to clue you in to who's winning and losing the retail race, without need for much more than fifth-grade math?

Lucky for you, I have one. It’s called "positive inventory divergence." In addition to the intimidating name, PID has the added downside of being tailored more toward manufacturers than retailers. In an effort to simplify the system, focus it more on retailers in particular, and -- I'll admit it -- cute-ify the name a bit, I've come up with a new system: The "clutter factor."

How the clutter factor works
Basically, we'll review each retailer's quarterly figures, focusing on sales growth and inventory growth year over year. Subtracting the latter from the former gives us the clutter factor. A positive number happily suggests that the company's sales are growing faster than its pile of unsold goods. A negative number means the retailer's tying up cash in goods it can't sell -- goods that will eventually go "stale," forcing the retailer to sell them at lower prices just to get rid of them, and hurting margins in the process.

The clutter factor should help you quickly grasp who's doing the best job of growing sales while controlling inventory pile-up (in a good economy), or at least working down its inventories quickly to control the damage inflicted by slowing sales.

Enough theory -- let's practice!
I've chosen a baker's half-dozen of companies operating in the home-retailing sector as our guinea pigs today. Here's how they stacked up in the most recent quarter:


Sales growth

Inventory growth

Clutter factor

Pier 1 (NYSE:PIR)




Bed Bath & Beyond










Target (NYSE:TGT)




Home Depot (NYSE:HD)




Lowe's (NYSE:LOW)




Wal-Mart (NYSE:WMT)




Foolish takeaway
Now that you've got the stats to work from, remember that the clutter factor's only a starting point for your research. This table tells you who's doing the best (Wal-Mart) and worst (Pier 1) jobs of managing their inventory for future success. It does not tell you whether the stocks in question are cheap or pricey. Once you've found a stock that looks cheap, it's up to you to determine whether it's a real bargain, or just cheap for a reason.

One last note
The media's made a lot of hay over Wal-Mart's recent "sales miss." True, the company reported lower comps than Wall Street expected. But year to date, Wal-Mart says its sales are up 6.5%. If inventory growth hews to its current trend, the company should remain top dog in the retail segment. Whether it's worth paying 15 times earnings for Wal-Mart's shares, however, is your call to make.

Wal-Mart, Home Depot, and Bed Bath & Beyond are Motley Fool Inside Value selections. Bed Bath & Beyond is also a Motley Fool Stock Advisor pick and a Motley Fool holding.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool's disclosure policy never goes out of style.