Understanding and managing SKUs (Stock Keeping Units) is essential for emerging CPG brands looking to enter the retail market. SKUs are crucial in tracking inventory, managing product information, and facilitating sales analytics. Effective SKU management can significantly impact a brand’s ability to scale and integrate seamlessly into retail environments. This guide explores the meaning of SKUs, providing actionable insights for optimizing their use.
What are stock keeping units? An SKU (Stock Keeping Unit) is a unique identifier assigned to each product in a brand’s inventory. Typically consisting of alphanumeric characters, SKUs distinguish products based on attributes such as size, color, and model. For example, a blue, size M t-shirt might have an SKU like "BLU-M-TSHIRT-001".
SKUs enable precise tracking of stock levels, sales patterns, and reorder points, ensuring efficient inventory control and reducing the risk of stockouts or overstock situations. By maintaining detailed SKU records, brands can streamline their operations, making it easier to manage large inventories and enhance customer satisfaction through better stock availability.
Every retailer uses a unique system for SKU identification:
Understanding these naming conventions and SKU meanings is crucial for CPG brands to ensure their products are compatible with retailer systems and comply with their requirements.
Planograms are visual representations of a store’s layout, showing where and how products should be displayed on shelves. SKUs are critical in creating effective POGs, ensuring that each product is placed in its designated spot for optimal visibility and sales.
Proper POG implementation, facilitated by accurate SKUs, helps increase sales by enhancing product visibility and improving the shopping experience. Effective packaging, whether it be hang tags, stand-alone displays, or sitting in a shipper, and the size of products are all taken into account when building POGs.
By assigning specific SKUs to designated spots on shelves, retailers can ensure consistent and logical product displays, which attract customers and drive sales. CPG brands must understand and work with retailers on POGs to ensure their products are displayed effectively.
SKU rationalization involves evaluating and optimizing the SKU portfolio to eliminate underperforming products and focus on top sellers. This process is essential for maintaining an efficient and profitable inventory.
To rationalize SKUs effectively:
By focusing on top-performing SKUs, CPG brands can reduce complexity, lower costs, and improve overall inventory performance, ensuring that shelf space is used for products that drive the most value. An essential aspect of successful SKU rationalization is maintaining adequate stock levels to prevent out-of-stock situations, which can severely impact sales and customer satisfaction.
At Lunr, we help emerging CPG brands with inventory financing and purchase order (PO) financing, enabling them to keep their top-performing products in stock and capitalize on sales opportunities without the burden of cash flow constraints.
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Optimizing SKU management involves several best practices and tools to ensure efficiency and accuracy:
Embracing the strategic importance of SKUs can significantly impact your brand's retail operations and profitability. By applying the strategies discussed, brands can improve inventory control, enhance product visibility, and boost profitability in the retail space.
For more detailed guidance and support, reach out to our team at hello@lunrcapital.com or apply here. Lunr provides expert insights and strategic solutions to help brands optimize and navigate the complexities of retail expansion.