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What is an SKU Number and How Can Retailers Use Them?

An SKU (Stock Keeping Unit) is a unique identifier used by retailers to track and manage their inventory. It is typically a series of alphanumeric characters that differentiate one product from another in a retailer’s inventory system. The SKU number is used for product identification, pricing, stock management, and order processing.

Key Features of an SKU:

  • Uniqueness: Every SKU is unique to a specific product, even if it’s a variant of the same product (e.g., different sizes or colors).
  • Alphanumeric: SKUs usually combine letters and numbers, allowing for easy categorization (e.g., “SHO123RED” could represent a red shoe of a specific brand).
  • Customization: Retailers can create their own system for generating SKUs, based on the product’s features like type, brand, size, or color.

How Retailers Use SKUs

  1. Inventory Management:
    • Tracking Stock: SKUs help retailers track quantities of each product in their inventory. When products are sold or restocked, the SKU allows the system to update stock levels accurately.
    • Reordering: Retailers can use SKU numbers to monitor which items are selling quickly and which aren’t, helping to streamline the reordering process. It also helps in identifying underperforming items for potential discounting or clearance.
  2. Product Identification:
    • Each SKU represents a specific product, which includes not only the brand and type but also other details like size, color, or style. This makes it easy for employees to quickly identify the product and ensure that the correct item is being sold, shipped, or restocked.
  3. Sales Analytics:
    • By tracking SKUs, retailers can analyze sales trends at a granular level. They can see which specific products are performing best and adjust marketing or purchasing strategies accordingly.
    • SKUs help retailers measure sales velocity, understand seasonal demand, and predict future sales patterns for better planning.
  4. Pricing:
    • The SKU system is also integral to setting and maintaining prices. It allows retailers to easily track the cost of goods, determine profit margins, and adjust prices as necessary.
    • If a product has a particular promotion or discount, the SKU ensures that pricing updates are applied consistently across all sales channels (in-store, online, etc.).
  5. Order Fulfillment:
    • When an order is placed, the SKU helps warehouse or stockroom staff quickly locate the exact product. This minimizes errors and speeds up the fulfillment process.
    • SKUs are essential for ensuring that the correct products are picked, packed, and shipped, reducing returns due to shipping mistakes.
  6. E-commerce and Multi-Channel Retailing:
    • For retailers operating both physical and online stores, SKUs provide a way to sync inventory across platforms. When a product is sold online or in-store, the SKU ensures that stock levels are updated in real-time.
    • In e-commerce, SKUs are used for product listings and help customers search for products by specific attributes, like size or color.
  7. Supply Chain Efficiency:
    • SKUs help retailers and suppliers manage the supply chain more effectively. With SKU numbers, retailers can communicate clearly with manufacturers and distributors about which specific products are being ordered or restocked.
    • They also help retailers track products through various stages of the supply chain, from ordering to shipping to receiving.

Benefits of Using SKUs for Retailers

  1. Improved Inventory Control: SKUs allow for detailed tracking of stock levels, preventing overstocking or stockouts and helping with the efficient use of storage space.
  2. Faster Sales Transactions: With SKU-based scanning (e.g., barcode scanners), checkout processes become faster and more accurate, improving customer experience.
  3. Better Data Analysis: Retailers can extract valuable insights from SKU-based data, improving decision-making on product promotions, pricing strategies, and marketing efforts.
  4. Enhanced Customer Service: When SKU data is well-organized, sales staff can quickly retrieve product details, availability, and location, enhancing service speed and accuracy.
  5. Reduced Errors: By relying on SKU numbers, retailers can minimize human error in ordering, stocking, and fulfilling orders.

Example of SKU in Action:

Let’s say a clothing retailer sells a T-shirt in different sizes and colors. Instead of using a generic product ID like “T-shirt,” the retailer could create distinct SKUs for each combination:

  • TST-RED-S: Small Red T-shirt
  • TST-RED-M: Medium Red T-shirt
  • TST-BLUE-L: Large Blue T-shirt

This allows the retailer to track inventory separately for each size and color variation and provides a clear understanding of which items are selling the most.

Conclusion

An SKU number is a powerful tool for retailers, enabling them to manage inventory, track sales, streamline order fulfillment, and maintain operational efficiency. By implementing an organized SKU system, retailers can boost their overall performance, improve customer satisfaction, and make better data-driven business decisions.