How Barcodes Work: Types & Retail Applications (+ Free Barcode Generator)

Retail barcodes are the backbone of store operations. They connect every product to the right data in your point-of-sale (POS) system, so checkout is faster, pricing stays consistent, and inventory stays accurate across channels.

In this guide, you’ll learn the essentials of retail barcodes: what they are, how they work in a retail barcode system, how to choose among common barcode types (1D and 2D), and how to generate them yourself. You’ll also see practical retail use cases—from inventory counts to returns and loyalty.

Whether you're a retail store owner running a single boutique or multiple locations, this guide dives into picking the right store barcodes and setting them up so your team can sell and restock easily. 

What is a barcode in retail?

A retail barcode is a unique visual pattern—made up of lines, dots, squares, or a combination—that links a product to data inside your retail barcode system. Like all barcodes, it doesn’t hold product details itself. Instead, it’s like a license plate: when scanned, it points to information in your inventory management system (IMS) or point-of-sale software.

Barcodes were originally developed to store product data in a way machines could read. They became commercially popular in the 1970s, starting in supermarkets. Over time, regulatory committees standardized store barcodes, creating many of the variations retailers use today. This variety helps fit different use cases—but it can also cause confusion when choosing the right type for your store.

How do barcodes work?

A barcode contains information in a pattern of lines, dots, or squares. Each number 0-9 and each letter of the alphabet is represented by a unique combination of these shapes and the spaces in between.

When a barcode scanner shines light on a product’s barcode, it decodes the pattern into a series of numbers and letters that have been assigned to that specific product. The scanner sends that decoded information to a computer that retrieves that product’s data for pricing, barcode inventory tracking, fast checkouts and accurate returns. Every time a barcode is scanned—whether at the register, in the stockroom, or during an audit—it updates your records automatically.

Components of a retail barcode system

If you're starting a new retail barcode system from scratch, here are the key components you'll need:

• Barcode scanners: These devices read the barcode and send the product data to your POS or inventory system. Retailers typically use handheld scanners, including mobile POS systems and apps, and countertop scanners at checkout desks.
• Barcode printers: Thermal printers are most common in retail, while inkjet or laser printers work for small-scale or temporary setups. Both print barcode labels for products or shelving units. 
• Point-of-sale (POS) or inventory management software (IMS): Theseconnect scans to your sales and stock data. The best systems integrate with every sales channel to keep accurate inventory records, no matter where you sell. 

Types of barcodes

Retailers use several barcode formats depending on product type, packaging, and data needs:

Linear (1D) barcodes

In linear barcodes, the pattern is formed by the varying widths of the bars and the spaces between them. Several global 1D barcode standards exist, each encoding information uniquely suited to its specific use case. These are one-dimensionally coded because the height of the bars does not change the information contained in the barcode, only the horizontal pattern.

UPC barcodes

Universal Product Code (UPC) is the most common retail barcode used to track items in stores. Also called EAN (which is the European standard for barcoding), the standard UPC system encodes 12 numeric characters.

UPC codes support robust inventory management systems and product tracking, from production all the way to the point-of-sale device. This offers the ability to track products across different stores and online channels.

Code 39 barcodes

The most popular non-UPC barcode, Code 39 is defined by an alphanumeric set, composed of numbers, letters, and a limited set of special characters. It’s widely used in packaging and shipping.

Code 39 can be read by laser, charge-coupled device scanners (CCD), and image-based barcode scanners. 

Code 128 barcodes

Code 128 is a high-density, alphanumeric barcode that can encode all 128 characters of the ASCII table (numbers, letters, and control codes). It's one of the most versatile barcode types, often used in packaging, shipping, and managing physical inventory. 

This type of barcode offers three character sets (A, B, C) that allow for efficient encoding of different data types, making it suitable for complex retail operations.

2D barcodes 

There are also two-dimensional (2D) barcodes, or matrix codes, that use geometric patterns to store data, and are readable from mobile devices.

QR codes

A quick response (QR) code is a popular form of 2D barcode that stores information both horizontally and vertically in a square grid. It can hold more data than a traditional barcode and is easily scannable by smartphones, one reason it is widely used in retail, marketing, and payments. 

Retailers often use QR codes to link to URLs, offer promotional codes, and provide product specifications, because they’re easy to generate and instantly recognizable. 

Data matrix barcodes

A data matrix is a type of barcode made up of black and white square modules arranged in a grid. It's used to encode small amounts of text or large volumes of data in a compact space. You'll commonly find them in manufacturing, electronics, medical devices, and small-item retail packaging.

Aztec codes

Aztec codes are a type of 2D barcode often used for transportation and event tickets. Their bullseye pattern makes them quick to scan, even when printed small or displayed on a mobile screen.

Aztec codes can store over 3,000 characters. Some also have error correction to recover data if part of the code is damaged or unreadable. 

Custom barcodes

The perks of using a custom barcode include affordability and more flexibility with product numbering. You create your own barcode format and point it to internal data you manage. This allows you to get creative with the way you break down the digits into subcategories like product types and other classifiers. 

💡Tip: You can also generate and print custom barcodes with Shopify’s free barcode generator.

Choosing the right barcode type for your business

Here's a breakdown of the key factors to consider when choosing a retail barcode system:

• Industry: Do you have enough space on the product label to add a barcode? Are labels likely to get damaged? For example, electronics often use compact data matrix codes, while grocery items usually carry UPC barcodes. 
• Data capacity needs: Certain barcode types hold more information than others. UPC codes, for example, can only store numeric product IDs. If you also want to store associated promotions, website URLs, and supply chain history in the code, opt for 2D barcodes.
• Scanning environment: Will scanning be done with a smartphone, handheld scanner, or at high speed? On the shop floor or in a busy warehouse? UPC, EAN, or Code 128 are best for quick POS scanning in well-lit, stable retail environments. You might opt for RFID tags instead of barcodes if your main priority is to track inventory throughout the supply chain. 
• Cost: Custom barcodes are quick and easy to make—all you’ll need is a free generator and barcode label printer. But costs increase if you need standardized codes for selling through third-party marketplaces.
• Scalability: If you plan to sell across multiple channels (e.g., retail, online, wholesale), stick with industry-standard codes to avoid relabeling. 

How are barcodes generated?

Barcodes are generated using software. Stores decide what information (like product ID, color, or size) they want the barcode to represent, then choose the barcode format accordingly. The software will automatically generate a machine-readable barcode. 

With the right software, a barcode reader, and a label maker, you’re able to create custom barcodes that let you determine your own symbology and product numbers. Here are the main ways retailers generate barcodes:

1. Create product codes (GS1 standards)

If you plan to sell through third-party retailers or marketplaces, you’ll need official barcodes issued by GS1, the global standards organization. GS1 provides Global Trade Item Numbers (GTINs), which become part of your product’s UPC or EAN.

Pricing depends on how many GTINs you need and your location. For example, GS1 US charges:

• An initial $30 one-time fee for a single GTIN (good for very small catalogs).
• Tiered pricing for barcode packages or “company prefixes” (allowing you to create many GTINs). For example, a package that covers 1,000 GTINs costs $2,500 upfront plus a $500 annual renewal fee.

GS1 will then assign a manufacturer ID number, which is the first six digits of the 12-digit UPC. The remaining numbers are uniquely assigned product numbers. GS1 assigns these numbers to your products once you upload criteria for certain fields, like name, quantity, description, etc. This ensures your products have unique, universal identifiers that work across all retailers and marketplaces.

2. Use a free barcode generator

A free barcode generator makes it easy to create and print custom barcodes for your business’s internal use. While these aren’t universal identifiers, they’re fast and cost-effective for small businesses. To use the free generator: 

1. Type in the data you want to encode into the barcode
2. Enter your email address
3. Download the custom barcode in a PNG file format to print

3. Test your barcode

After generating your barcode, scan it with a POS system or handheld scanner to ensure it pulls up the correct product information. This step verifies your barcode works seamlessly within your sales and inventory system, before printing labels in bulk.

4. Repeat for all products

Stores need individual barcodes for each SKU, not each individual item. Otherwise, you may find yourself in a confusing mess when it comes to product distribution, inventory management, and sales tracking.

For example, a batch of 100 dog collars of the same model would all receive the same barcode. You do not need 100 unique barcodes for each collar.

Repeat the barcode-generation and testing process to ensure that every item is properly coded and identifiable. This systematic approach guarantees that your entire inventory is trackable, simplifying the sales process.

5. Print your barcode labels

For retailers looking to create and print custom barcode labels for their products, a POS system that has integrated barcode software is the way to go. Shopify POS has a Retail Barcode Labels app that allows stores to design and print barcodes onto labels with an attached POS barcode printer or any inkjet or laser printer on labels.

If you set up and purchase barcodes from GS1, access and manage them directly through the GS1 Data Hub. From there, you can use any number of label creation methods to download and print your barcodes.

Benefits of using barcodes in retail

Efficient point-of-sale operations

Barcodes on products are perfect for speeding up the checkout, return, or exchange process—eliminating manual data entries and reducing errors. 

Plus, many POS systems (including Shopify) can create a barcode for a transaction that stores information related to the sale on your receipts. These barcodes can include any of the following data: 

• Date and time of purchase
• Store number, if there are multiple locations
• Register number
• Associate or staff name
• Item price
• Coupons or discounts used
• Method of payment

Depending on the type of barcode—custom or UPC—the software receiving the binary code scheme will retrieve the information associated with the barcode. 

Retailers sometimes ask, “Can I scan a barcode from another retailer and access the information about its product?” The answer is no—while UPCs all look the same, the data stored in the barcode is private and connected to your store’s POS or inventory management software. You own the rights to your product information, you decide what data to store in your POS, and it’s only accessible to you or partners you authorize.

Accurate inventory management and tracking

Stockouts drive customers to competitors. Barcode-based inventory systems help you keep shelves stocked by tracking sales and keeping accurate inventory data. Tools like Stocky can trigger reorders when inventory falls below a predetermined level. 

For backroom or stockroom purposes, scanning barcodes helps store owners keep track of their stock location and quantities. Shelving locations can have barcodes that can be scanned and stored, linking the location to a product for stockroom visibility and organization.

Reduced human error and improved data accuracy

It’s easy to wind up with inaccurate inventory data if you’re asking store associates to count each product individually. Barcode systems, however, don’t rely on your employees’ math skills to conduct stock checks. They can point a scanner at the product label and have the barcode system automatically update stock quantities inside your IMS.

Enhanced supply chain visibility

Barcodes allow retailers to scan items at each touchpoint—manufacturing, shipping, receiving, stocking, and more—to create a digital trail. This visibility provides real-time insights into a product’s location and its current stage in the supply chain. 

Plus, when barcode scans feed data into systems like enterprise resource planning (ERP) or inventory management tools, you can analyze data to optimize routes, predict stockouts, or identify supply b3ottlenecks.

For example, your IMS might show 500 units available for sale, but as quantities dwindle down, you realize you’re 10 short. Scanning each individual product tag when the shipment arrives can help you flag the missing 10 units, so you can raise it with the supplier and get the correct quantities without rushing for a last minute delivery.

Improved customer experience

Barcodes streamline checkout by eliminating the need to manually enter prices or product names. This alone helps retain the 80% of shoppers who’d exit a store if the line was too long. 

Retail barcodes also ensure consistent product pricing between shelves and the register. Fewer manual errors mean customers are less likely to be overcharged, undercharged, or delayed due to price checks at checkout. 

💡Tip: As the only platform to natively unify POS and ecommerce on the same platform, Shopify ensures your product data—including pricing and inventory—is consistent everywhere you sell. A leading independent research firm found this approach delivers:

• Up to 36% better total cost of ownership
• 20% faster implementation speeds
• 89% lower annual third-party support costs 

Advanced barcode applications in retail

Asset tracking and management

Barcodes aren’t just for products; they can also track store assets, such as POS hardware, company laptops, and digital signage screens. When you scan these codes, you can see:

• Purchase date
• Warranty details
• Manufacturer contact information
• Maintenance schedule 
• Location (e.g., a particular retail store)

Barcode asset management helps maintain compliance without manual reminders. If your health and safety documentation says electrical equipment should be tested every two years, for example, you could routinely scan barcode labels on each device to easily see when it was last tested and the date for renewal. 

Loyalty programs and customer engagement

Barcodes make loyalty rewards easy to redeem in-store. You can tie physical or digital codes to unified customer profiles, enabling personalized rewards and seamless shopping experiences across channels.

For example, you might send a personalized email with a unique barcode coupon to your VIP customer, redeemable at in-store checkout. Once scanned, the system can tag that customer as “Purchased in Chicago store” and retarget them with future campaigns. 

💡Tip: Shopify stores customer data in one unified profile—no matter whether that data came from a native Shopify feature (e.g., Shopify POS) or third-party app (e.g., Klaviyo). Use this to create custom segments that divide your audience into groups based on qualities they share, so you can personalize the end-to-end experience, regardless of where they shop. 

Product authentication and anti-counterfeiting

Fraud costs retailers an estimated $101 billion every year. Barcodes help with authentication and verifying legitimacy. 

Cashiers can scan the barcode label to retrieve product details, including the serial number or purchase date, to verify a returned item is legitimate before refunding the customer. If the code has already been scanned or doesn’t exist, the system flags it as potentially counterfeit.

What’s the difference between SKUs and barcodes?

SKUs and barcode numbers both manage inventory but serve different purposes. A SKU is a unique code you create for internal tracking. Unlike SKUs, barcodes are universal identifiers that can be scanned and recognized across retailers and sales channels.

When to use a SKU

Use SKUs for internal tracking of stock levels, like categorizing jewelry by size, material, and type using an easy-to-understand code. For example, medium gold hoop earrings could be coded as "MED-GLD-HOOP-01." 

You can convert SKUs into barcodes for scanning purposes, but remember, SKUs are for internal use, unlike universal barcodes designed for transactions and wider inventory management.

When to use a barcode

Use barcodes, like UPCs, as standardized identifiers across different retailers. This ensures that a product has the same barcode no matter where it’s sold. 

For example, a refrigerator model will have the same UPC whether purchased at one store or another. This universal coding facilitates product sales both in physical stores and online, which is why UPCs are crucial for managing inventory accurately across all sales channels.

Barcodes vs. RFID and NFC

Barcodes, radio frequency identification (RFID), and near-field communication (NFC) are all technologies used for tracking, identifying, and interacting with products in retail. Each one works slightly differently with unique use cases. 

Generate barcodes for your retail store

Retail barcodes seem confusing at first, but they’re simply a visual representation or picture of a product identifier. Machines can read them and point to data about your products that helps you run your business better.

Systems like Shopify POS can help integrate barcode management with your products seamlessly. Print barcode labels, scan items at checkout, and automatically update stock levels in your inventory management system. This improves inventory accuracy and speeds up the shopping experience for your customers.