SKU Numbers Explained


Revel Blog | Revel Systems | May 27, 2021 |

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Keeping track of inventory is a centerpiece of designing your retail experience and figuring out where to focus your efforts.

Understanding which products sell best and knowing when you’re about to run out of a specific product is key to giving customers what they want when they want it. 

It all starts with the SKU.

What does SKU stand for?

A sku is the Stock Keeping Unit, and every retailer has them. Let’s take a look at what they are and how they’re used.

What is a Stock Keeping Unit (SKU)?

So, what is a SKU number, and why is it important? 

The SKU meaning in retail is essentially a unique code that identifies a specific product. There are no universal standards for how these codes work. Every retailer will come up with its own unique system for identifying the different products they sell.

Your point of sale (POS) platform will aggregate all the different product SKU codes so you can easily gather data and come to conclusions about your inventory.

How SKUs Work

The store SKU number is designed exclusively to differentiate between products. It’s a code that allows retailers to operate using specific data.

You have complete control over how you design your numbers. These numbers are purely for internal use. The key to them is they are designed to be read by humans. You don’t need to scan them, and employees should be able to glance at a store SKU 

number and instantly know which product the code references.

Let’s take a look at some stock-keeping unit examples to see how this works in practice.

For example, let’s say you are selling 89-ounce plastic bottles of soda pop. A store may decide to use the number: SODA-PLAS-89.

Alternatively, they may sell multiple brands of soda, so they could also use the code: YUM-SODA-PLAS-89.

There are no universal standards when it comes to creating these numbers. However, they should be extremely specific and should never be easily confused with other, similar products.

Where to Find the SKU Number 

To find a product SKU, look at the back of a product. Most retailers place their store SKU above the barcode. For a real life example, grab any product you’ve bought to see your retailer’s SKU right now.

However, since this number is placed above the barcode, people often confuse what these numbers are and how they are used.

SKUs vs. UPCs

Perhaps the biggest source of confusion is between the SKU and the Universal Product Code (UPC).

When you look at a barcode on a product, you’ll see two lines of code. The UPC usually goes immediately below the barcode itself.

A UPC is a universal identifier for a specific type of product. A barcode scanner can immediately identify what a product is, the model, and its price. This helps track inventory and which consumers bought an item should a general product recall or alert be issued.

UPCs enable products to be tracked outside of a specific store. Retailers can track product shipments from production to distribution.

The main takeaway is that UPC numbers are universal and standardized, whereas SKUs are designed for internal use only and can be fully customized.
The Importance of SKUs

When asking, “What is SKU?” you need to consider why they’re so important to the humble retail store.

They are the foundation of tracking your inventory. Every time you scan an item through your POS system, the movement of inventory is automatically tracked.

Vendors can also use them for tracking other metrics, such as repair time, service periods, and warranties. Retailers can also pair them with automatic ordering systems to ensure a store never runs out of its flagship product.

Without these codes, retailers would need to hand count every single product. This is extremely time-consuming and heavily prone to error.

SKUs guarantee consistency and accuracy when tracking inventory.

What are SKUs Used For?

There are many ways in which these tracking numbers can be used. Here we examine some stock keeping unit examples to better understand how these codes can be used within your store.

Inventory Management

Inventory management is the primary function of the stock keeping unit. There are three key functions involved in managing inventory through these codes:

  • Track inventory levels.
  • Monitor inventory turnover.
  • Control inventory flow.

Most modern retailers set up their systems to automatically trigger new inventory orders whenever the quantity of a specific product reaches a certain level.

However, retailers may also use SKUs to relate inventory to timeframes, which can act as a point of reference to determine whether to order more inventory or to phase a product out entirely.

Analysis

Data is at the heart of why the SKU is such an important aspect of maximizing retail sales. These numbers are an extremely powerful source of data analysis.

Retailers can determine product popularity and detect buying trends.

For example, a retailer may discover that their branded bottles of water sell more during the second and third fiscal quarters, which cover the hottest months of the year.

They can then match this behavioral trend to inventory by putting in larger product orders during these financial quarters while reducing inventory when customers are less likely to buy these bottles of water.

Major retailers invest millions in this type of analysis, and the source of that analysis is the product SKU.

Product Recommendations

Retailers want to maximize the revenue of every outlet, every aisle, and every display. Intelligent retail centers on giving customers exactly what they need and what they want.

Demographical data helps with this, but you need to dig deeper. You must have an intimate knowledge of how your customers live and how they behave from season to season.

Utilizing SKU numbers can help you to pinpoint those products that sell best. When you understand what attracts customers the most, you can begin to make product recommendations.

This is one of the ways online retailers like Amazon provide a personalized shopping experience.

For example, if someone searches for a lawnmower on Amazon, the platform will log the specific Stock Keeping Unit and then come up with a list of close match retail SKUs. These could be for slightly different models or similar brands.

On the consumer end, they will receive a list of different lawnmowers that match certain parameters, such as their browsing histories and similar consumer trends.

This is a brilliant way of utilizing these internal numbers to fulfill the needs of your customers.

Another way of utilizing these numbers for product recommendations is to use them in conjunction with your newsletter.

If you have a newsletter, you can match up different SKUs to different customers and make personalized recommendations.

With research showing that customers are more likely to buy when the shopping experience is personalized, this is one of the most important functions of these internal codes.

It ensures no two retail experiences are exactly the same.

Advertising

Retailers specializing in one or two different types of products have it easy when it comes to advertising. They know what they need to advertise, and all they have to do is target their ideal customer.

For retailers with more extensive product ranges, they need to know where to invest limited advertising dollars.

Using these numbers to direct advertising campaigns is a cutting-edge retail technique. Ensuring that you’re getting the maximum ROI on your advertising dollars is the key to boosting your bottom line in the long term.

Many retailers are increasingly using the store SKU to advertise their products, rather than the manufacturer’s model number or the UPC.

This makes it more difficult for consumers to compare retailers selling the exact same product. They need to go out of their way to track down different retailers, which pushes them towards purchasing with you.

It’s a direct reaction to the practice of visiting online comparison sites and buying based on the lowest price.

Studies show that customers want a streamlined, minimal-click buying process. If it’s harder for them to compare, they’re more likely to simply purchase without comparing.
Final Thoughts

By viewing retail SKUs as nothing more than a way to track inventory levels, you’re not unlocking the full potential inherent within these internal codes.

When you start to use these numbers in different ways, you gain an edge over your competitors. The key to digging into the data is a cutting-edge retail POS system.

Contact Revel Systems® to learn more about how our cloud-based POS platform can transform your retail business.