The Tyro Blog

18 October 2022 - 4 min read

Business Strategies

What is a SKU and how do they relate to retailers?

SKU (pronounced ‘skew’) is one of countless acronyms used in the retail world. In this article we cover what a SKU is and how it works, so you can understand what it’s all about.

What is a SKU?

SKU, meaning Stock Keeping Unit, is a unique alphanumeric code that’s assigned to products to distinguish them from each other, helping retailers track inventory levels and easily locate items. Typically eight characters long with a scannable barcode, SKUs identify various product traits including price, brand, colour, style, and size. SKUs don’t just apply to physical items though; they may also be used for intangible but billable products such as warranties. 

SKUs aren’t universal, and they’re not meant to be. Created by you for your business, you can tailor SKUs to fit your needs, and the needs of your suppliers and your customers, to help your business succeed.

How do SKUs work?

If you take an automated approach to SKU, when a customer purchases a product at your Point of Sale (POS) system, the POS system automatically removes the item from your electronic inventory – keeping your stock levels up to date, in real time.  

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Why are SKUs important?

SKUs help you accurately track your inventory so you’re always across your stock. Here are some of the key benefits of SKUs:

Knowing when to order new items 

An SKU database allows you to keep track of product levels, so you can see what items are getting low and when you need to order more. This is an easy and efficient way to ensure your shelves are nice and full, all year round. 

Identifying losses 

If an SKU scan shows a mismatch between items in your inventory and items sold, it’s likely that some items have been stolen or misplaced. Being able to identify these losses can make for a less messy reconciliation process, and less time spent scratching your head trying to work out why things aren’t adding up. 

Valuable insights 

SKUs also allow you to collect data on sales, which will help you identify which items are (and aren’t) selling well. Knowing which items are the most popular means you can get creative with in-store product displays and visual merchandising, and invest in some strategic marketing, to help turn them over even faster. If a certain product isn’t doing so well, you don’t have to immediately scrap them from your shop. Considering that a handful of customers may still purchase them, you can just decrease how much you buy instead. These insights can go a long way in making the most of your money. 

Customer service and satisfaction 

SKUs provide an easy, reliable reference that employees can use to look up items. For example, let’s say a customer finds a product on your online store then enters a brick-and-mortar location wanting to find it in person. By keying in the SKU number from the online listing into the in-store database, an employee can easily find where the product is sitting in the store and direct the customer to it, giving them a satisfactory shopping experience. 

Similarly, SKUs provide an easy way for customers to reorder items. Instead of having to repeat a search for products they’ve previously bought, they can simply search for a SKU or ask an employee to process a new order for them using the same SKU. 

Offer customers new suggestions and boost sales 

SKU data isn’t just a gamechanger for inventory management and sales analysis; it’s also valuable on the sales floor. For example, if a product is out of stock, your retail team can use their SKU knowledge to direct your customers to similar items, in an attempt to avoid losing a sale. On the other hand, if a product is in stock, your team can suggest related products to complement the purchase, increasing the likelihood of extra sales. 

This same method can be used on eCommerce sites, by using SKU architecture and an algorithm to display relevant items to customers.

The bottom-line

SKUs, or Stock Keeping Units, are designed to make life easier for your retail business. By understanding what’s important for you, your suppliers, and your customers, you can craft a SKU architecture that allows you to effectively manage your inventory and scale your retail business.