1. adapting warehouse space for dark stores doesn’t just create warehouse innovation, it changes the dynamic of warehouse space, making less space available for warehouse rental
2. warehouse retailing changes the transport patterns around the dark store, often bringing in customers for click and collect
3. relocating pick and pack services to grocery warehouses reduces staffing at out of town supermarkets and increases it at the dark store, so ancillary services (food outlets and even gyms) are increasingly relocating to service those new employment centres.

What is a dark store?

A dark store is nothing more than a warehouse full of groceries. While some are purpose-built (Tesco has a robot dark store in Erith) others are simply repurposed warehouses like the Waitrose dark store run out of an old John Lewis soft furnishings warehouse in London. What they generally have in common is:

• A location that allows easy click and collect or delivery to a pickup location
• A degree of refrigeration
• Layout designed to speed selection

The dark store is seen as the solution to a major problem for grocery retailers, and increasingly for fashion retailers too. People are choosing to buy mundane purchases (milk, cereal, toilet rolls, sports socks, sports equipment, bedding) using click and collect because they are uniform, bulky and difficult to transport. This reduces time investment, parking and stress for the consumer, but leaves the supermarket with a problem – how to get these bulky and difficult to transport purchases to the consumer in a timely fashion?

We’ve all had the experience of dodging the ‘pickers’ in our local supermarket. With their racks of baskets and electronic pick lists, they scurry around fulfilling six or eight orders at a time. But they do get in the way of the individual shopper and – more importantly to the supermarket – the individual shopper slows down the professional picker!

The dark store resolves this problem. By stacking the same items in the dark store as in the conventional shop, but organising it for ease of picking, not customer attractiveness, supermarkets get the best of both worlds – easy e-commerce fulfillment and happy shoppers.

Why the growth in warehouse retailing?

In 2013 online grocery purchase were just 5.5% of the market. By 2023 that’s expected to double.  While there’s a distinct limit to the amount of grocery shopping that we’re likely to do because people (a) like to choose certain products for themselves (b) impulse shop in particular for food, that limit doesn’t apply to other areas that are moving into dark store operation such as sporting goods retailers. Increasingly furniture and fashion retailers are choosing dark store operations alongside smaller, often experience-led retail outlets. The key feature of warehouse retailing is speed – customers expect the exact items they have ordered, in perfect condition, and within a one hour time slot, or they don’t re-use that service.

Order fulfillment services and dark stores

There are four distinct ways that e-commerce orders can be delivered to the consumer:

1. Store collection – this model allows the customer to order online and collect from a retail outlet that they are familiar with
2. Dark store collection – while customers cannot be allowed to enter a dark store – usually because the building is not purposed or insured for consumer use – outdoor space around the former warehouse can often be used to create click and collect points
3. Designated pick up points – these can be anything from bus stations to shopping centres and are often attractive to customers when they are located along popular commuting routes
4. Home delivery – completing the last mile delivery in dedicated vehicles to the customer’s home is one of the most popular ways to complete a dark store order.

Challenges to the dark store concept

There are still several major challenges to the dark store as a method of order fulfillment, notably:

• Multiple picking lines – there tends to be a hybrid model of warehouse retailing at present which creates two distinct pick lines using the same produce. The first is a line that supports the product range carried in convenience stores or small outlets and the second supports the wider product range sold in large shops or flagship stores. This is true in both grocery and non-perishable dark stores and while it balances the demands of the current retail model in the UK it is neither efficient nor cost-effective.
• Demand forecasting – traditional warehouse facilities have always constellated near transportation centres but the dark store concept requires warehousing to be near customer bases which increases demand on city-based warehousing, which is already at a premium.
• Store replenishment demands – when a dark store has stocks of something that retail units sell out of, the temptation is to transfer stock from the dark store to the retail venue. This turns a dark store into a secondary warehouse for the retailer and can interrupt its supposed function to meet online consumer demand.
• In some recent cases, the desire to repurpose existing warehouse space to dark store function has been objected to by local councils or community groups because of the impact on the local environment, on the community or on jobs. Councils dislike the ‘creep’ of the dark store concept as it has the potential to avoid paying business rates on retail properties but still be a retailer.

Many grocery retailers are now trying to meet increased demand for online delivery. They are expanding their omni-channel capabilities for online ordering and refining their storage and distribution processes. Today the challenge is: How can grocers provide great experiences all the way to each customer’ doorstep?

It all comes down to delivery and the answer lies in ‘Dark Stores’.

What is a Dark Store?

A Dark Store -also known as micro-fulfillment center- is a location dedicated to rapid online order fulfillment. It is a small, local store but without the customers. Just like any other conventional grocery store, a Dark Store has aisles with shelving and racks for groceries.

When a customer order comes in, Dark Store employees pick and pack the items immediately. Then they either ship the order direct to the customer’s address or to a convenient collection point specified by the customer.

DARK STORES: A POST-PANDEMIC RETAIL MODEL HERE TO STAY

When the going gets tough, merchants get creative. We’ve witnessed this in all kinds of contexts the past year, as hotels have turned empty rooms into co-working spaces for the WFH-crowd and restaurants have started offering takeaway menus and home delivery. And along those same lines, many retailers have converted their physical stores into “dark stores.”

Because even though confined indoors, consumers did not stop consuming. Despite incomes going down significantly for many, global shopping volumes overall increased, with the retail sector gaining 35% in market capitalization from February 2020 to April 2021. And yet, many retail businesses have been struggling. So what separates the leaders from the laggards?

Well, McKinsey puts it like this: “In many cases, the strengths enabling some companies to surpass their industry peers—tech-forward and asset-light business models propelled by the tailwinds of growing demand—became even more important during the crisis.”

And one of the ways retail stores have successfully adapted their business models to the pandemic has been to “go dark.”

Related reading: Digital Ecommerce Business Models – The Current Landscape

WHAT IS A DARK STORE?

Let’s first define what a dark store is and how it’s different from other hybrid and ecommerce business models. A Dark Store is basically a brick-and-mortar location that has been shut down and turned into a center for fulfillment operations.

These distribution outlets are not open to visitors, allowing more space for store inventory and to quickly and accurately fulfill orders. Dark Stores provide shoppers with resources and options like purchasing products online, same-day delivery, or pickup in-store.

Of course, this concept is not new. Some companies that have long been implementing variations of this process include Whole Foods, Walmart, Target, Bed Bath & Beyond, and the majority of large fashion retailers. But as brick-and-mortar stores have struggled during lockdowns, the number of Dark Stores has grown significantly during the past year.

Retailers Move To Dark Fulfillment Centers

Dark stores are traditional retail stores that have been converted to local fulfillment centers. They come in the form of grocery stores, clothing brands and home goods retailers. As stay at home orders and social distancing limit the number of customers inside physical stores, some brands are simply closing their doors to customers altogether and turning those locations into dark stores to fulfill delivery and pickup orders.

Whole Foods recently converted stores in Los Angeles and New York to dark stores. Other grocery chains like Kroger and Giant Eagle have temporarily moved some locations to dark stores, with plans that some locations could become permanent. Dark stores are most common in grocery chains, but the trend is also moving to other industries. Bed Bath & Beyond recently announced plans to transition 25% of its stores into regional fulfillment centers to make faster deliveries during the pandemic. A number of fashion brands, including jewelry company Kendra Scott, are also converting their stores to fulfillment centers to provide faster deliveries and reduce the strain on the main fulfillment hubs.

But the roots of dark stores are in pre-pandemic times. Many chains, including Walmart, have been testing the dark store concept for months. Target uses a hybrid approach and sends items from stores to fulfill some online orders. The idea is to put fulfillment centers in densely populated areas to shorten delivery times and provide a faster and more convenient shopping experience. The need and demand for that convenience has only grown in recent months. Even before the pandemic, the number of U.S. adults who had tried and liked grocery delivery was at 12%, a 50% jump from 2019. Most retailers had been planning for 30% annual growth for e-grocery, which accounts for 6% of total U.S. sales, but the pandemic quickly changed those expectations.

Permanent Dark Stores Are The Future

The rapid growth in demand for grocery stores pushed chains to find solutions for automation and fulfillment quickly. But with those systems in place, dark stores could turn into permanent fixtures to serve customers.

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Even after the coronavirus has subsided and consumers try to return to some kind of normalcy, we’ll be faced with a new normal. Shoppers who have experienced delivery, curbside pickup and e-commerce will likely adopt at least some of those habits into their everyday lives. Many stores may still limit the number of customers inside at a time or instill social distancing measures. Dark stores help ease all of those transitions while still protecting customers and employees. 

Some stores may follow the lead of Walmart and Target to turn parts of their stores to fulfillment centers. Allowing customers to enter only part of the store or pulling inventory off the shelf for deliveries expands how stores can reach out and serve customers without decreasing the experience for customers who prefer to shop in store.

For other brands, full-time dark stores will become the new way of doing business. But it won’t come without challenges and adjustments. Permanent dark stores, especially in grocery chains, could disrupt the supply chain and require more infrastructure. Simply expanding the current delivery and pick-up options isn’t enough. To truly be effective, stores need to think through their entire dark store strategy and automate wherever possible. Streamlining processes and automating order fulfillment could help lessen the strain of permanent dark stores.

The current global pandemic has turned the retail world on its head and created huge unknowns going into the future. Dark stores can help improve customer experience now and provide easier access to essential items, and the practice could pave the way for the future of retail.

Retailers Move To Dark Fulfillment Centers

Dark stores are traditional retail stores that have been converted to local fulfillment centers. They come in the form of grocery stores, clothing brands and home goods retailers. As stay at home orders and social distancing limit the number of customers inside physical stores, some brands are simply closing their doors to customers altogether and turning those locations into dark stores to fulfill delivery and pickup orders.

Whole Foods recently converted stores in Los Angeles and New York to dark stores. Other grocery chains like Kroger and Giant Eagle have temporarily moved some locations to dark stores, with plans that some locations could become permanent. Dark stores are most common in grocery chains, but the trend is also moving to other industries. Bed Bath & Beyond recently announced plans to transition 25% of its stores into regional fulfillment centers to make faster deliveries during the pandemic. A number of fashion brands, including jewelry company Kendra Scott, are also converting their stores to fulfillment centers to provide faster deliveries and reduce the strain on the main fulfillment hubs.

But the roots of dark stores are in pre-pandemic times. Many chains, including Walmart, have been testing the dark store concept for months. Target uses a hybrid approach and sends items from stores to fulfill some online orders. The idea is to put fulfillment centers in densely populated areas to shorten delivery times and provide a faster and more convenient shopping experience. The need and demand for that convenience has only grown in recent months. Even before the pandemic, the number of U.S. adults who had tried and liked grocery delivery was at 12%, a 50% jump from 2019. Most retailers had been planning for 30% annual growth for e-grocery, which accounts for 6% of total U.S. sales, but the pandemic quickly changed those expectations.

Permanent Dark Stores Are The Future

The rapid growth in demand for grocery stores pushed chains to find solutions for automation and fulfillment quickly. But with those systems in place, dark stores could turn into permanent fixtures to serve customers.

Best Travel Insurance Companies

Even after the coronavirus has subsided and consumers try to return to some kind of normalcy, we’ll be faced with a new normal. Shoppers who have experienced delivery, curbside pickup and e-commerce will likely adopt at least some of those habits into their everyday lives. Many stores may still limit the number of customers inside at a time or instill social distancing measures. Dark stores help ease all of those transitions while still protecting customers and employees. 

Some stores may follow the lead of Walmart and Target to turn parts of their stores to fulfillment centers. Allowing customers to enter only part of the store or pulling inventory off the shelf for deliveries expands how stores can reach out and serve customers without decreasing the experience for customers who prefer to shop in store.

For other brands, full-time dark stores will become the new way of doing business. But it won’t come without challenges and adjustments. Permanent dark stores, especially in grocery chains, could disrupt the supply chain and require more infrastructure. Simply expanding the current delivery and pick-up options isn’t enough. To truly be effective, stores need to think through their entire dark store strategy and automate wherever possible. Streamlining processes and automating order fulfillment could help lessen the strain of permanent dark stores.

The current global pandemic has turned the retail world on its head and created huge unknowns going into the future. Dark stores can help improve customer experience now and provide easier access to essential items, and the practice could pave the way for the future of retail.