SKU (Stock Keeping Unit)

The seventh and lowest level in a merchandise hierarchy, representing a unique identifier for each distinct product or item in a retail store's inventory (e.g., Floral Button-Up Blouse - Blue - Small, Floral Button-Up Blouse - Blue - Medium, Floral Button-Up Blouse - Blue - Large).

What is SKU (Stock Keeping Unit)?

A Stock Keeping Unit (SKU) is a unique alphanumeric code or number assigned to each distinct product or item in a retailer's inventory. SKUs serve as identifiers to track and manage individual products, facilitating inventory management and sales monitoring. SKUs can include various product attributes, such as size, color, and style, enabling retailers to distinguish similar products with slight variations.

How SKU works

  • Identification: Each product or item in a retailer's inventory is assigned a unique SKU, typically composed of alphanumeric characters. This identifier helps distinguish one product from another, even if they are similar or share common attributes.

  • Attributes: SKUs often incorporate various attributes of a product, such as size, color, style, and sometimes location. This detailed information makes it easier to manage and track different product variations.

  • Inventory Management: Retailers use SKUs to monitor inventory levels accurately. When products are bought or sold, the SKU is used to update stock counts. This ensures that retailers know when to reorder products and maintain optimal stock levels.

  • Sales and Reporting: SKUs play a crucial role in tracking sales and generating reports. Retailers can analyse which products are selling well, and which may be underperforming. This data is invaluable for making informed decisions about restocking, promotions, and inventory adjustments.

  • E-commerce and Online Shopping: In the world of e-commerce, SKUs are also used for online product listings. They help customers identify and select the exact product they want, especially when there are variations in size, colour, or other attributes.
In essence, SKUs are a fundamental part of retail operations, aiding in efficient inventory management, sales tracking, and providing a structured approach to product identification.

Pros of SKU

  1. Efficient Inventory Management: SKUs streamline inventory tracking and control. Retailers can easily monitor stock levels for each product variation, reducing the risk of overstocking or understocking. This efficiency helps in optimising working capital and reducing carrying costs.
  2. Accurate Sales Analysis: SKUs provide granular data on product sales. Retailers can analyse which product variations are most popular, helping in making informed decisions about restocking, expanding product lines, or running targeted promotions.
  3. Enhanced Customer Experience: In e-commerce, SKUs play a vital role in ensuring customers can find and order the specific product they want, even when there are many variations available. This leads to a more convenient and satisfying shopping experience.

Cons of SKU

  1. Complexity: Managing a large number of SKUs can become extremely complex. Retailers must assign and keep track of unique codes for each product variation, which can be time-consuming and prone to errors.
  2. Data Entry Errors: With many SKUs, there's an increased risk of data entry errors, such as inputting the wrong code, which can result in inventory discrepancies and affect order fulfilment and customer satisfaction.
  3. Costs: Creating and maintaining an extensive SKU system may require investments in inventory management software and employee training. Additionally, the cost of generating and labelling products with unique SKUs can add up.


Below you will find answers to common questions
What's the purpose of using SKUs for our products?
SKUs are unique codes or labels assigned to each product variation in our inventory. They serve as a shorthand reference for products, making it easier to track inventory levels, manage stock, and quickly identify and locate items. This helps streamline our operations, reduce errors, and improve inventory accuracy.
How can we ensure that our SKU system is efficient and effective?
To ensure an efficient SKU system, it's essential to establish a clear and organised coding system. Use logical patterns that convey information about the product, such as color, size, and brand. Regularly review and update SKUs to eliminate redundancies and ensure consistency. Additionally, train staff to understand and use the SKU system effectively for accurate inventory management and reporting.