SKU Numbers 101: A Complete Guide for Retailers
Stock Keeping Units (SKUs) are one of the most useful tools for any business, whether they operate a physical store, an online business, or both. SKUs help businesses track inventory, streamline operations, and enhance the customer experience. If you’re a retailer looking to optimize your inventory management and sales strategy, understanding SKUs is critical. However, there is no one-size-fits-all method for creating SKU numbers, and each brand uses them differently. Adopting an SKU system might quickly become problematic if you have no idea what it’s for.
In this blog, we’ll go over everything you need to know about SKUs, including what they are, why they’re useful, how to use them in your business, and some of the best practical tips for effective SKU management.
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SKU Numbers 101: A Complete Guide for Retailers
What is an SKU?
A Stock Keeping Units (SKU) or SKU number is a unique identifier assigned to each product in a retailer’s inventory. SKUs are alphanumeric codes that enable businesses to differentiate between products depending on size, colour, brand, and category.
For example, an online clothing store might use the following SKU for a blue medium-sized T-shirt:
TSH-BLU-MED-001
In this SKU:
TSH represents the product type (T-shirt)
BLU represents the color (Blue)
MED represents the size (Medium)
001 is a sequential identifier to differentiate products
SKUs aren’t universal. Each retailer develops their own SKU system based on their own inventory requirements. SKU numbers are alphanumeric codes that merchants assign to each unique product or product variation. There are no standard rules for generating SKU numbers. Rather, any business can design SKU numbers with whatever characters and characteristics make the most sense for their operations.
Why is an SKU Useful in Retail?
SKUs help businesses track product stock levels, making it easier to monitor what’s available, what needs to be restocked, and which items are selling quickly. This ensures that businesses know exactly which products are available, which are running low, and which need replenishment. By having a structured SKU system, retailers can avoid the costly mistakes of overstocking slow-moving items or running out of best-selling products.
A well-organized SKU system also speeds up order processing and fulfillment. When employees can quickly identify and locate products in the warehouse or stockroom using SKU numbers, picking, packing, and shipping orders become much more efficient. This not only reduces processing times but also minimizes errors, leading to fewer incorrect shipments and returns. Faster fulfillment translates to increased customer satisfaction and repeat business.
Most importantly, SKUs enable businesses to track sales performance accurately. Retailers can analyze SKU-level sales data to identify top-selling products, seasonal trends, and customer preferences. By understanding which products drive revenue and which do not, retailers can make data-driven decisions regarding pricing, promotions, and product discontinuation. This level of insight allows businesses to optimize their inventory and maximize profitability.
How to Use SKUs in Your Online Store?
For online retailers, implementing an SKU system can significantly improve efficiency. Develop an SKU format that makes sense for your business. SKUs are flexible; there is no universal set of norms or guidelines that every organization must follow when producing SKUS. Rather, every business is free to develop SKUs using whatever system and criteria works best for them. You can use a combination of letters and numbers to best describe your product’s characteristics, such as category, brand, size, and colour.
Here’s a step-by-step guide on how to create and use SKUs effectively.
Define Product Attributes
Start by identifying key attributes that differentiate products. Common attributes include:
Category (e.g., T-shirts, Shoes, Accessories)
Brand (e.g., Nike, Adidas, Puma)
Color (e.g., RED, BLU, BLK)
Size (e.g., S, M, L, XL)
Material (e.g., Cotton, Leather, Polyester)
Style or Season (e.g., SUM21 for Summer 2021)
Develop a Standardized SKU Format
Use a logical sequence to structure your SKU. A well-designed SKU format may follow this pattern:
[Category]-[Brand]-[Size]-[Color]-[Unique Identifier]
Example SKU for a black medium-sized Nike T-shirt:
TSH-NIKE-M-BLK-001
This structure ensures each SKU is unique and provides immediate product recognition.
Avoid Common Mistakes
Keep the SKUs simple and straightforward to enter into systems. To avoid mistakes, do not use special characters (*, &, %, @) or spaces. SKUs should not begin with a zero, as some systems may misinterpret them. Ensure that SKU codes are consistent across all platforms and inventory systems.
Implement SKUs Across Your Online Store
Assign SKUs to all products on your e-commerce platform (such as Shopify, WooCommerce, or Amazon). To avoid confusion, ensure that each product has the same SKU across your website, inventory management software, and third-party markets such as Amazon or eBay. Consider:
Include SKUs in product listings to help with searches and sorting.
Make SKUs searchable on your website so customers and employees can quickly locate products.
To speed up inventory counting and order fulfillment, use SKU-linked barcode labels. Barcode scanners can help to automate and reduce errors in product handling.
Leverage Inventory Management Software
Use inventory management software that supports SKUs to automate stock tracking and sales reports. Some SKU-compatible software such as QuickBooks, NetSuite, or TradeGecko allows you to automate stock tracking, generate reports, and analyze sales trends. These data will help you to prevent stockouts of popular items while avoiding excessive inventory that leads to increased storage costs and potential markdowns.
As your product lines expand, you should check your SKU system on a regular basis to avoid duplicates, streamline outdated formats, and ensure the consistency of your SKU system.
Other Tips for Effective SKU Management
Keep SKUs Short and Descriptive: Avoid using long SKUs. Use abbreviations to make the product easier to recognize at a glance.
Do Not Begin SKUs with Zero: Certain software systems may misread numbers that begin with zero, resulting in mistakes.
Group Similar Products Together: Use structured SKU patterns to ensure products from the same category or brand are easy to identify.
Include basic information: When creating an SKU system, remember to record the dimensions and weight of each SKU. While some businesses tend to skip this step, it is necessary to estimate your inventory capacity size accurately.
Train Your Team on SKU Usage: Educate employees on how to read and use SKUs to enhance efficiency in stock management and customer service. Employees should be able to quickly recognize products, update stock levels, and accurately handle returns.
Avoid Using Manufacturer’s SKU as Your Own: Manufacturer SKUs may not be unique across different suppliers. Always create a custom SKU system for your store.
Test Your SKU System Before Full Implementation: Before finalizing your SKU format, test it with a sample of products to ensure it meets your operational needs.
Use SKU Data to Improve Business Decisions: Regularly analyze SKU-based sales data to make informed decisions about purchasing, pricing, and marketing.
SKUs are a powerful tool for managing inventory, improving efficiency, and enhancing the shopping experience in retail. Whether you own a physical store, an e-commerce site, or both, implementing an effective SKU system is important for growth and operational efficiency.
Retailers can improve their operations and increase revenue by creating a clear SKU structure, connecting it with inventory software, and following best practices. Start using SKUs effectively today to optimize your retail business and stay ahead of the competition!
Read more:
Shift From In-House To Outsourced Fulfillment – When it’s Better & How to Do it Right
How Third-party Logistics Services Can Ensure E-Commerce Growth?
The Top 6 Reasons For Outsourcing in Supply Chain Management For Your eCommerce Business
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