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SKU for eCommerce: The Ultimate guide for using SKU numbers effectively

All eCommerce businesses have a fundamental need to optimize their inventory management systems to operate smoothly not just on the customer front, but also behind the scenes with vendors and suppliers. SKU or Stock Keeping Unit is one of the key identifiers used to differentiate your eCommerce store’s products from one another and keep an updated record of your inventory. 

SKU numbers are unique alphanumeric codes assigned to each product to accurately identify it with its specifications such as style, size, color, and others. This plays a pivotal role in inventory tracking and business analytics related to your eCommerce business, and tracking SKUs can allow you to study and cater to the evolving demands of your customers. 

What is an SKU number?

As stated earlier, a Stock Keeping Unit number is a unique string of alphabets and numbers that identifies each product variant in a seller’s inventory. Businesses often generate SKU numbers either manually or through automated systems. SKUs allow business owners to maintain a credible record of inventory down to every product variant, differentiating them on the basis of predefined categories or metrics. 

It is important to note that SKUs differ from Universal Product Code or UPC, in that UPC is used to identify a product category across manufacturers. This means that if you are selling the same item as another eCommerce store, the UPC code will be the same. On the other hand, SKU code is generated and used by a manufacturer or retailer based on their unique business and product categories. 

Designing an SKU number

Creating SKU numbers for your e-commerce products starts with setting an SKU architecture that will guide the naming convention. PoS systems and inventory management systems can help businesses generate SKU numbers.

Each product has a unique SKU number representing different aspects of product information like color, size, price, style, and type to identify the particular variant. SKUs can be made as complex or simple as you like. It is an alphanumeric code and usually begins with a string of alphabets followed by a string of numbers. 

Breaking Down an SKU number 

The first part of an SKU number is the broadest or top-level characteristic of the product, such as category and supplier. The middle characters represent further details of the product, while the last few characters represent variations that differentiate one product SKU apart from another. 

Depending on your eCommerce store, you can begin the design process by noting down the top identifiers customized for your business. For example, if you are a jeans manufacturer, you can use the SKU pattern –

Product-size-fit-color

If the product in consideration is a Navy Blue Levi’s jeans in size 36 and a relaxed fit, the SKU number could look like LERE-0701. Once decided, it is important for businesses to stick to the formula or naming convention for SKUs. 

Importance of SKU for eCommerce

While the process may appear complicated, SKU codes can be transformational for eCommerce businesses in enhancing sales, and customer experience, while building a robust, self-regulating inventory management system.

Personalized fashion leader StitchFix notes in its 2020 Annual Report that Stitch Fix’s algorithms filter over one thousand SKUs to recommend a subset of relevant merchandise to their stylists, who leverage the information to select the merchandise for a client’s Fix. 

SKUs not only help retailers keep a stock of their inventory in real-time, but also analyze customer buying behavior, identify fast-moving vs slow-moving product variants, and in turn, evolve their marketing and merchandising strategies.

  • Build a streamlined inventory management system 

The most obvious benefit of using SKUs for your eCommerce business is a smooth functioning supply chain, with all the stakeholders involved (including manufacturers, vendors, retailers, and sellers) having the access to accurate inventory data in real-time.  

Moreover, SKU numbers help businesses identify pricing for different products and have the ability to retrieve product data such as brand, size, style, category, and more with ease.

  • Leverage data to understand customer behavior

One of the ways SKU numbers can help businesses take their growth to the next level is through data-based insights into customer behavior. Using SKUs for every product variant will help you track the sales and demand for your best-selling and slow-selling products. 

This can be used by eCommerce stores to understand their customers better and take steps to cater to their needs in the future. This could look like recommending or cross-selling products based on previous purchases, or personalized offers and discounts. 

  • Evaluate business growth by accurately tracking inventory

Tracking inventory is a key element of the eCommerce supply chain, and not doing it well can result in both short-term as well as long-term operational issues. SKU for eCommerce enables online stores to keep a close eye on their inventory levels and maintain them on a timely basis. 

Shrinkage or loss of inventory due to mismanagement or theft is one of the burgeoning issues for businesses. In fact, the retail industry suffered a massive loss of $61 billion due to shrinkage in the year 2020 alone. SKU numbers can help businesses create accurate sales reports based on tags and type codes, manage warehouse inventory levels, and facilitate efficient communications between vendors and merchants. 

  • Highlight and restock your highest profit-generating products

Inventory forecasting and keeping track of overstock can help businesses evaluate and predict customer demand while restocking best-selling products in time. SKUs for eCommerce ensure optimal customer service and logistical functioning amongst vendors, traders, and manufacturers. 

The accurate tracking of product data empowers all the stakeholders to stay up to date with the inventory trends, and streamline their operations at all levels.

  • Customize product recommendations to boost sales

As mentioned earlier, using SKU for eCommerce stores can lead to intelligent decision-making and help businesses push products that are more likely to trigger purchases amongst returning customers. Not surprisingly, 54% of retailers report that product recommendations are the key driver of the average order value in customer purchases. 

Tracking the movement of different product variants can reveal rich insights into customer preferences and help businesses gain a deeper understanding of demand and supply. 

  • Elevate customer satisfaction and brand loyalty

SKU numbers can help eCommerce stores manage their reorder points or the inventory levels that shoot alerts when it’s time to restock particular product variants. This is absolutely critical to building loyalty among customers since most people will choose the same product from a different online store if they like it and are unable to buy it on yours. 

Restocking items at the right time can be a key driver for online sales and can make a big difference for an eCommerce fashion business. 

Leveraging SKU Numbers to Grow your eCommerce Store

SKU numbers encourage the systematic organization of product inventories for eCommerce and retail businesses, helping them boost sales in multiple ways –

  • Eliminating stockout situations for bestselling products.
  • Enabling smoother communication with merchants and vendors.
  • Optimizing product search across PoS systems, and warehouses, and enabling faster checkouts.
  • Converting SKU numbers to barcodes and elevating customer shopping experience while streamlining store logistics.
  • Retrieving product and sales information with ease across platforms.

SKUs – A building block for self-regulating inventory levels

Inventory management is at the heart of any eCommerce business’ success, and no matter how big or small your business is, you need to ensure that everything runs smoothly behind the scenes. SKU for eCommerce allows brands to ensure that there are minimal stockouts for profit-generating products and that customer satisfaction remains at the forefront of all their efforts. 

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Arunava Acharjee

(Product Marketing Manager)