What is a retail SKU

What is a Storage Unit (SKU)?

Storage units, or SKUs, are valuable for inventory tracking.

By definition, a Stock Keeping Unit (or SKU) is a number assigned to a product by a retail store to identify the price, product options, and manufacturer of the goods. A SKU is used to track inventory in your retail store. They are very valuable when it comes to maintaining a profitable retail business.

When a SKU is called up in your POS or accounting system, it is a series of numbers that track unique information about that product.

Unlike UPCs, SKUs are not universal, which means that every retailer has their own SKUs for their goods.

Typically, SKUs are divided into classifications and categories. Many retailers use the next series of numbers in the SKU to group products for analysis. For example, 25-10xxx are gas ovens and 25-20xxx are electric ovens. The next number could be a color indicator. So, 25-1001x are white ovens and 25-1002x are black ovens. And the list can go on from there.

How are SKUs used?

Ever wondered how Amazon.com was shopping for the perfect item to "suggest" another idea? With these SKUs, they do it. Amazon.com has simply included a unique SKU with all of the identifying features on each product. So when you look at one mixer, there may be other mixers that you might like. But you won't just see one blender, you will see the ones that have the same features based on the SKU information.

Most POS systems allow you to create your SKU hierarchy or architecture. Before creating a well-designed system for your inventory, think about what you are really going to be tracking. If you are an independent retailer, the likelihood of going beyond classification is unlikely.

For example, a shoe store might classify shoes by type of customer (men, women, children), then style (dress or casual), color, and perhaps material.

Larger shoe stores can further subdivide categories into heel types or seasons. With the item number of an item, a retailer can track its inventory and sales through detailed reporting. And that reporting can be shared with our suppliers to negotiate better terms and appointments.

Have you ever been to a store and seen the employee scan the SKU or UPC label to see if there are more in the warehouse? Inventory management is the main function of a SKU, but it can also improve the shopping experience for customers, as in this example. The ability to electronically identify your inventory levels reduces the time the customer expends.

Another great benefit of a SKU is in advertising. With the competitive landscape of retailing today and any price to match, a unique item number can help protect your margins. For example, many retailers will put the article number in the newspaper (ROP) versus the manufacturer's model number. Buyers cannot tell if the washing machine they are looking at is the same as the other. And retailers don't have to match the price. It also helps reduce "showrooming" in your store.

The difference between SKU and UPC

SKU numbers are often confused with the terms barcode or UPC.

While a barcode can be used like a SKU (meaning that all of the above information can be linked to the barcode or UPC), they are not the same.

On the one hand, UPC stands for Universal Product Code. Unlike a SKU, this number and code is the same in every retailer. It also just keeps track of basic information. A merchant would need to add this UPC to their inventory database and assign it a SKU in order for it to work. However, many POS systems allow you to use the UPC as a SKU in your store. All you need to do is enter all the classification details into your POS inventory database for them to match. I preferred this method in my business.