What is a SKU and How are They Used in Retail

Allison Champion
4 min read
August 19, 2020
Modified: March 20, 2023

It doesn’t matter if you’re a veteran retailer or just now preparing to launch your eCommerce store, you need a reliable way to track your inventory. That’s where SKU numbers come in to play. But what are SKU numbers, and why are they so important? This article has everything you need to answer those questions and use SKUs more effectively in your eCommerce business.

What are SKU Numbers

A Stock Keeping Unit, or SKU, is a number used to track the movement of inventory. They are typically applied to product labels as scannable barcodes, composed of an alphanumeric combination of characters.   

Most importantly, SKU numbers are exclusive to one store and not used externally, which means you can generate SKU codes in the way that makes the most sense for your business, your customers, and the products you sell. 

What’s the Difference Between SKUs and UPCs

The unique nature of a SKU number is also what differentiates it from a UPC (Universal Product Code). Unlike SKU numbers, which are internal to your business, UPC codes are external product tracking codes that are standardized for use by any company by the Global Standards Organization.

If two companies sell the same item, those items will have different SKU numbers, but the same UPC code. There are also physical differences in how SKU numbers and UPC codes are applied and utilized. SKUs are alphanumeric; 8 to 12 characters long and typically accompany a scannable barcode. UPC codes, on the other hand, are only numeric and always 12 characters long. 

Why are SKUs Important

SKUs are essential because they enable retailers to differentiate products from each other and categorize inventory items by the product details/characteristics they deem most important, like price, color, style, brand, gender, type, and size. 

This information is incredibly valuable, because it not only enables shoppers to compare characteristics of similar items, it also helps vendors determine which products need to be reordered to avoid stock out. 

How to Use SKUs Effectively

Stock order numbers are primarily used to track and categorize inventory, but that’s not the only thing they can do. The real purpose of a SKU number is to enable access to valuable information, which can then be used to gauge the profitability and efficiency of your eCommerce business. 

Forecast Sales

 With a SKU architecture in place, you have the information you need to forecast demand and better anticipate your business needs, making it easier to keep your products in stock and avoid a costly stockout.

Inventory Optimisation

Though the primary function of a SKU system is to track inventory and product traits in real-time, they can also be used to ensure your inventory management system is operating at peak efficiency, accuracy, and productivity, thereby helping you understand your business’s better evolving needs.

Improve Customer Service and Satisfaction

A SKU system also makes it easier for your team to provide better, more accurate information to your customers, thereby improving the customer experience. This is especially valuable in brick-and-mortar retail environments, where a staff member can physically scan a barcode for information. 

Let’s say, for example, that you’re tracking multiple product characteristics through your SKU architecture. If a particular product is out of stock, you can use your SKU data to direct your customer to a similar product in the store or even check a sister store’s inventory to see if they have the item in stock.

How to Create a SKU Number

Since SKU numbers are internal to your business, you have a lot of freedom in creating how and managing your SKU architecture. You can manually generate SKU numbers or invest in a warehouse management system (WMS) that does the tedious leg work for you. 

It really doesn’t matter what method you choose, so long as you are consistent with your SKU conventions and follow these best practices:

  • Make SKUs easy to understand
  • Put the most important identifiers first
  • Arrange words by the importance
  • Don’t lead with the number zero
  • Don’t use any of the manufacturer numbers within your SKUs
  • Don’t use letters that look like numbers, spaces, accents or symbols
  • Separate identifiers with dashes to make the SKU more readable

Grow Faster with Flowspace WMS

At the end of the day, a stock keeping unit system is little more than a repository of useful information and only a single facet of your inventory management strategy. You still need an ecommerce fulfillment system to manage inventory, orders, reporting, and billing. 

The Flowspace platform is the only system built for profitability, performance, and growth. Cloud-based and easy-to-use, our WMS provides a modern and collaborative portal for managing inventory and enables you to generate SKUs with a click of a button. Contact us today to get started.

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Written By:

flowspace author Allison Champion

Allison Champion

Allison Champion leads marketing communication at Flowspace, where she works to develop content that addresses the unique challenges facing modern brands in omnichannel eCommerce. She has more than a decade of experience in content development and marketing.

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