Article

What is an SKU and how is it used?

About the Article

Stock keeping units (SKUs) are a simple solution to inventory tracking, a significant challenge facing many retail businesses. By assigning an SKU number to every item in your store, you can easily track when items are sold, analyze purchasing trends, determine when it is time to restock an item, and much more.

This article explains how SKUs work, their comparison to UPCs, generating SKUs, and getting the most out of SKUs as part of a retail strategy.

What is a Stock Keeping Unit (SKU)?

A stock keeping unit, or SKU, is a unique code that a seller assigns to every type of item it sells. SKUs are also an important part of a merchandising structure, allowing merchants to arrange inventory in their stores or warehouses according to product SKUs. These record-keeping units enable sellers to fulfill orders and manage inventory quickly.

For example, a shoe retailer will have an SKU for each style, which often includes individual attributes for said style. 

Learn about Skus

The SKU CL-SAN-LT-8-BLU would indicate the manufacturer "Clarks",  "sandals," "leather," size "8," and color "blue." 

In your warehouse or on the sales floor,  you may choose to place all shoes that begin with "CL" in the same area. Alternatively, you may choose to arrange everything by color or size. 

SKUs are alphanumeric, meaning they are composed of a combination of letters and numbers. SKUs may appear in a number of places, ranging from physical tags attached or printed on your items themselves to listings inside your catalog.

Importantly, SKUs are unique to your own brand’s inventory. The SKU you assign to a particular item is not the same as the one another business uses for the same item. 

By maintaining unique codes for each type of item you sell, you can simplify the movement and management of those items within your inventory and retail operations.

SKU or UPC: What's the difference?

You may be familiar with the UPC barcodes, which appear on the back or side of most product packaging. While UPCs and SKUs are similar in some ways, they are actually used for very different purposes.

The main difference between UPCs and SKUs is that UPC codes are universal and shared across businesses. In other words, the UPC for a particular item sold in one store would be the same as for the same item offered through another store or in an online channel. Because of this characteristic, UPCs can be used to track the same product across multiple stores.

Another difference is UPCs are designated by GS1 US, an information standards organization. To contrast, retailers generate their own SKUs. UPCs are also most commonly printed as barcodes on product packaging, whereas SKUs appear in a variety of other locations and are not usually translated as barcodes.

A final major difference is the composition of the codes themselves. UPCs are 12-digit codes composed exclusively of numbers. SKUs, as noted above, are alphanumeric, and they can vary in length — optimally between eight and 12 characters, but may be much longer.

SKU

UPC

Unique to an individual retailer – can be used for marketing purposes or for internal tracking purposes.

Universal – same code used by multiple retailers for product tracking.

Can be used to identify a product at a specific store location or website

Can be used to locate a product across multiple websites or retail establishments

Created by a company for internal use

Created and administered by GS1

May be printed on store-specific website, product page, shelf pricing

Printed as a barcode on product label

Alphanumeric – usually 8-12 characters

Numeric – 12 digits

 

Why SKU's Are Important to Store Owners

SKUs play a key role in helping store owners perform several critical tasks related to inventory, sales analysis, customer service, and marketing activities. 

Inventory Management and Tracking

By making it easy to determine how many items of a certain type exist within an inventory or how many were sold, SKUs increase the accuracy of inventory management and warehouse activities. They are also helpful in locating a specific item, especially if a retailer organizes its inventory by SKU in order to keep track of inventory visually.

Additionally, SKUs help identify losses. If an SKU scan shows a mismatch between the number of items in inventory and those that were sold, it's likely some items are missing due to theft or misplacement.

Collect and Analyze Sales Data 

SKUs offer a convenient way to quantify sales information. Including SKU numbers in each order invoice or receipt makes it easier to automatically analyze how many items of a certain type were sold in a certain period. You can also identify which items are most popular or most profitable, and assess how sales performance for a specific product varies between seasons.

Technically, it's possible to accomplish these tasks without SKUs. However, SKUs provide a level of consistency and efficiency that would be difficult to replicate. With an SKU, you can analyze sales data using a short, consistent code. This is much better than trying to track sales based on a descriptor like “green deck shoes,” which may not always be recorded consistently in each sales record.

Customer Service and Satisfaction 

SKUs provide an easy, reliable reference your employees can use to find items within inventories or product catalogs. In turn, they enable better customer service while satisfying shopper expectations.

For example, consider a situation where a customer finds an item in your brand’s online store then enters a brick-and-mortar location wanting to find the same item there. By finding the item’s SKU number in the online listing, and looking up the SKU in a database of items in the physical store, an employee can easily direct the customer to the right location inside the store.

Similarly, SKUs provide an easy way for customers to reorder items. Instead of having to repeat a search for products bought previously, they can simply search for an SKU or ask an employee to process a new order for them using the same SKU. This advantage makes SKUs particularly helpful to wholesale and B2B customers who often buy in bulk using SKUs to track products within their enterprise resource planning (ERP) systems.

Marketing

Marketers benefit as well from SKUs. They can use SKUs to send recommendations for similar products when customers shop online as well as track how sales for a given product correspond with marketing campaigns that focus on said product.

Additionally, because SKUs are only used within a certain business, prospects can’t use them to compare the same item across multiple stores. For this reason, including SKU information in flyers, brochures, or other marketing material is a safe way to keep track of information without encouraging potential customers to look at your competitors’ offerings.

How to Generate SKU Numbers

The most effective SKUs are not simply random strings of numbers. Instead, they are composed of smaller units of information.

They often begin with a 2-3 character identifier that reflects information such as the department or category with which the item is associated. The next sets of characters typically correspond to data such as product size, color or sub-category. The final characters are usually a sequential number.

By generating SKUs using this approach, you can ensure each SKU is unique to your business, while embedding meaningful information within your SKUs. For example, if every SKU begins with a department code, it is easy for an employee to look at the SKU to determine where to return a misplaced item.

Because SKUs must be unique to each product within your inventory, trying to generate them manually is not realistic. Instead, businesses should use an inventory management system or point-of-sale system that generates SKUs automatically.

Make Selling Easier With the Right Platform

Support for generating and managing SKUs is among the many features built into Magento Commerce, which also streamlines the process of managing products across multiple internal or third-party websites. Using Magento Commerce, you can easily create a unique and meaningful SKU for every item you sell, whether you offer a few dozen or many thousands of products. You can also use SKU data to analyze sales, manage customer relations, and increase conversions.

Learn more by requesting a free Magento Commerce demo.

What is an SKU and how is it used?