What Is A SKU In Retail?

If you can’t track it, you can’t measure it. For retailers, tracking inventory, sales and key retail KPIs are invaluable for success. Speaking of inventory, how do retailers keep track of all their products? Well, they use coding systems to keep track of their inventory and to measure sales. These codes are extremely important and can make the difference when stores need to know when reorder points should take place. They can help inform you when you need to add safety stock. They also allow retailers the opportunity to gauge which products are moving off the shelves.

By definition, a (SKU) or stock keeping unit is a specific number assigned to a product by the retail store to identify the price, product options and the manufacturer of the merchandise. SKUs are used to track inventory in your retail store. They are very valuable in helping you maintain a profitable retail business.

When accessed in your point of sale (POS) or accounting system, a SKU is a series of numbers that tracks unique insights related to that product. If you use a POS, you likely already know how important your POS data is.

SKUs are not universal, not like universal product codes (UPCs),  which means that each retailer will use their own SKUs for merchandise.

While there’s a number of different combinations SKUs can use, most of them are broken down into 2 groups;

  • Categories
  • Classifications

Many retailers will use series of numbers in their SKU to group products together for analysis. Due to this, we want to give you a few examples. We’ll go DIY on this one. For example, 35-10xxxx could be for a tool box and 35-20xxxx could be for a tool box with tools. The next number could be the identifier of the color. So, 35-10001x could be for a blue tool box and 35-10002x could be for the red tool box.

How Are SKUs Used?

When you break down companies that use SKUs like a Champ, Amazon reigns supreme.

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For example, when customers begin shopping using a SKU, Amazon will auto populate related products based on your selections. Since the SKU has traits for each product, they know which products to display when you’re searching. Now, Amazon also has cookies that are much more intelligent versus that of the SKU, but stock keeping units are still useful.

Most POS systems will allow you to create your SKU hierarchy or architecture. Before you create an elaborate system for your inventory, consider what you will truly track.

For independent retailers, you’re likely not going to track beyond classification. For example, a watch store might classify watches based on customer type (men, women, children), style, color, and material.

Larger watch stores may use categories to break down the classifications more, such as Rolex types or trends. With an item’s SKU, a retailer is able to track its inventory and sales through detailed analytical reporting, such as POS analytics.

Have you ever been in a retail store and seen the associate scan the SKU or UPC label to see if there were any more in the stockroom? Inventory management is the core function of an SKU, but it can also improve the shopping experience of your customers. Being able to immediately identify your stock levels helps you take care of the customer faster.

While a lot of people don’t recognize it, another great benefit of a SKU is in advertising.

With such a large competitive landscape in retail today and many retailers matching prices, having unique SKUs can be the difference in higher profit margins.

*Accelerated Analytics publishes resources like this to provide insights to different analytical metrics, data points and formulas. Please be aware, we’re not claiming that our POS reporting services will offer this example or any other metric, data point or formula. To learn exactly what our reporting covers, please feel free to schedule a demo or give us a call. Thanks for understanding.