What Hybrid Retailers Need to Know About SKUs

Hybrid commerce is gaining traction with small businesses as well as major retailers like Walmart. Shifting to hybrid selling can help businesses meet the varied demands of customers by offering both an in-store experience and an e-commerce model. However, hybrid retail does present some unique logistical challenges for businesses, including SKU and inventory management. Here’s what hybrid retailers need to know about SKUs.

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What is a SKU?

A stock-keeping unit (SKU) is a number that retailers assign to a specific stock item to keep track of inventory. 

The SKU is used to identify each specific product—variations such as different sizes, colors, types, and other variations of the product will often have different SKUs. In the retail industry, SKUs are part of the backend inventory control system and allow the retailer to track stock in their inventory across different warehouses or retail stores.

SKUs are often confused with universal product codes (UPCs), which are manufacturer-assigned numbers that accompany a barcode. UPCs are consistent for the same product across multiple retailers, and many retailers use an item’s UPC as its SKU. However, an item may have a different SKU from one retailer to the next.

How to create SKU numbers

While SKU numbers can simply be the UPC number, hybrid retail stores are often better served by creating custom SKUs for their business. Retailers can create their own naming conventions for SKUs in their store. However, SKUs are generally 8-12 characters and start with a number.

Here are some elements that are commonly included in SKU numbers:

  • The brand or supplier: Choose one or two letters to designate the product’s brand name or the supplier that provides the item.
  • Color: Listing the color in the SKU, in an abbreviated format, makes it easier for employees to tell the products apart in the backroom. 
  • Size: Each size should have its own indication. For clothing, you may choose to use standard sizing abbreviations such as XS, S, M, L, and XL.
  • Sequence identifier: A sequence identifier is a number that indicates the order in which the item was added to your inventory. This can be helpful for identifying updated versions of the same item.
  • Location: Some companies like to add an identifier to indicate where the product is located in the store or warehouse. It’s probably not a good idea to do this unless you keep your store layout consistent and your back room or warehouse well-organized.

These are the most common elements included in a SKU number. However, SKU naming conventions can be customized by each retailer, so adjust these to fit your needs or preferences.

SKU challenges for hybrid retailers

The basics of assigning and managing SKU numbers can apply to brick-and-mortar, online, or hybrid businesses. However, there are some unique challenges that hybrid retailers face when it comes to SKU management.

SKU proliferation

One of the challenges of hybrid retail is increased SKU complexity. In order to meet the demands of both in-person and online shoppers, many hybrid retailers find that they not only need to order more of their existing products but also expand their product catalogs by adding more SKUs.

SKU proliferation refers to the process of increasing the number of SKUs in a business’s inventory. If this is done correctly, it can help boost sales and increase profit. However, hybrid businesses can sometimes expand their SKUs too quickly and spread themselves too thin. 

Adding SKUs can create challenges around storage, shelf space, and staff product training. There’s also always the risk that the new SKUs won’t sell well, meaning you’ll be stuck with extra inventory that doesn’t move. It’s important to balance the design to expand with any limitations placed on your current space and budget. 

Inventory management

Effective inventory management is especially important for hybrid retailers. Because you are selling online and in-store simultaneously, you’ll need to carefully track what you’ve sold and what you have in stock. You’ll likely find that you need to be more organized in your inventory management efforts to avoid running out of your most popular products or accidentally double-selling an item.

SKU solutions for hybrid retailers

While SKU management and logistics can be challenging, there are some things that you can do to keep your hybrid selling processes organized and efficient.

Decide on a consistent SKU naming convention

Having a consistent SKU format across your inventory makes it much easier for workers to locate products and track sales and ordering needs. Even though you essentially have two sides of your business—e-commerce and in-person—it’s best to keep your SKUs consistent. 

If you want to include location information, you can add a location identifier to designate where your product is stored such as the shelf, section, or area of the backroom. You can also create unique identifiers for multiple warehouses or distribution centers. 

Alternatively, you could use an identifier to designate in-store, online, or hybrid products if you have some products that can’t be shipped well and are only available for in-store purchase such as refrigerated goods.

Invest in inventory management software

Any small business planning to shift to a hybrid commerce model should heavily consider investing in a good inventory management software solution. Some smaller businesses can get away with less formal options like spreadsheets, but these usually aren’t scalable and don’t work well in a hybrid model. 

With hybrid commerce, you’ll want your inventory to be updated in real-time whenever someone makes a purchase in-store or online. Otherwise, you may end up selling the last of an item in-store when you’ve already promised it to an online customer.

Your inventory management system can also help assign custom SKUs to each product. Custom SKUs with product information such as color can make the packing process easier when fulfilling online orders. It can also ensure you’re fulfilling your orders correctly, thus minimizing the challenge of reverse logistics.

Use detailed SKUs to forecast sales and inventory needs 

If you own a brick-and-mortar retail establishment and are just wading into the world of hybrid retail, SKUs will be one of your best tools for digitizing your ordering process. You may find that your online audience has different product preferences or buying habits than your in-person clientele. Use SKU reports to track what products are experiencing higher demand so that you can adjust your supply chain requirements accordingly.

Read more: Supply Chain Strategies

Adapting to a hybrid retail model 

Hybrid retail is a rapidly growing segment of the retail market. As large businesses like Amazon, Walmart, and Target embrace hybrid retail models, small businesses will also need to keep up in order to compete. 

An organized SKU management approach will help you stay on top of inventory management, sales forecasting, and consumer demand. In addition, there are a number of great e-commerce platforms and shipping services available to make the move to hybrid retail a little bit easier. 

Read next: Hybrid Commerce Is More Feasible and Crucial for SMBs

Kaylyn McKenna
Kaylyn McKenna
Kaylyn McKenna is a freelance writer specializing in business and technology. She has expertise in marketing, human resources, technology, leadership, and business management. She enjoys helping small businesses navigate the unique challenges that they face. Her work has appeared in a variety of publications.

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