Stock Keeping Unit (SKU): What It Is and How It’s Used in Retail

October 19, 2023
Stock Keeping Unit (SKU)

The world of retail is vast and complex, with millions of products circulating daily. To manage this complexity and ensure efficiency in operations, the retail industry employs various tools and techniques. One of the most fundamental tools in this arsenal is the Stock Keeping Unit, commonly known as SKU. This article dives deep into the concept of SKU, understanding its significance and its application in the retail domain.

What is a Stock Keeping Unit (SKU)?

A Stock Keeping Unit (SKU) is a unique alphanumeric code assigned to each product or item for the purpose of internal tracking and inventory management. This code distinguishes products based on various attributes such as brand, size, color, and type. Essentially, SKUs act as the fingerprint of retail products, ensuring that each item is distinct and easily identifiable.

For example, a blue, size medium t-shirt from Brand X might have an SKU like “BRX-TSHRT-BLU-M”, while the same t-shirt in size large might have a different SKU, such as “BRX-TSHRT-BLU-L”.

Why are SKUs Important?

Inventory Management: SKUs provide a systematic way to track the quantity of each specific item in a store or warehouse. Retailers can quickly determine when stock is running low and needs replenishment, helping to avoid stockouts or overstock situations.

Sales Analysis: By tracking sales based on SKUs, retailers can determine which products are best-sellers and which ones are underperforming. This data-driven approach helps in making informed decisions about purchasing, marketing strategies, and product placement.

Operational Efficiency: With SKU systems, retailers can streamline the processes of receiving, storing, and selling products. Automated systems can quickly scan and recognize SKUs, expediting tasks like checkout, restocking, and inventory counts.

Error Reduction: Human errors are inevitable. However, by using a SKU system, miscommunications regarding product specifics can be minimized, as every product has a unique identifier.

How are SKUs Used in Retail?

Point of Sale (POS) Systems: At the checkout counter, SKUs are scanned to determine the price of an item. This also helps in updating the inventory levels in real-time.

E-commerce Platforms: Online retailers use SKUs to manage their digital inventory. When customers place orders, the system refers to the SKU to determine product availability and logistics.

Warehouse Management: In large warehouses, SKUs assist in organizing storage. Products can be grouped based on SKUs, making it easier to locate and manage stock.

Order Fulfillment: When processing orders, SKUs ensure that customers receive the correct item. It aids in avoiding mix-ups and ensuring accurate order fulfillment.

Product Returns: When a product is returned, its SKU can be used to update inventory levels, process refunds, or manage exchanges.

Best Practices for Creating SKUs

Maintain Consistency: It’s essential to have a consistent method for SKU creation across all products, ensuring that staff can understand and manage them effectively.

Avoid Ambiguous Characters: Characters like ‘0’ and ‘O’ or ‘I’ and ‘1’ can be confusing. It’s a good practice to avoid such characters in SKU codes.

Make it Meaningful: A well-structured SKU can provide insights into the product without having to look it up. For example, including brand initials, color codes, or size indicators can make SKUs more intuitive.

Ensure Uniqueness: Every SKU must be unique to its product. Duplication can lead to errors and inefficiencies.

Plan for Scalability: As a retailer’s product range grows, the SKU system should be able to accommodate new items without overhauling the existing system.


SKUs are the backbone of modern retail operations. They facilitate smooth operational workflows, provide insights into sales trends, and ensure accuracy in transactions. By understanding and effectively implementing SKU systems, retailers can optimize their operations, enhance customer satisfaction, and drive growth in an increasingly competitive market.

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