Dark stores are becoming a popular alternative to a traditional store or a fulfilment centre. In this article, we explain “What is a dark store?” and “How do dark stores work?” Plus, we look into the benefits of dark stores – both for businesses and for their customers. Lastly, you’ll learn whether a dark store model is right for your business, and if it is, how you can incorporate a dark store into your fulfilment strategy.
What is a dark store? The new micro fulfilment centre option.
Dark stores are stores that used to be for in-person shopping, but have now been converted into micro fulfilment centres. These stores were once open to the public as a traditional brick-and-mortar store. Now, they’re closed to the public and are used by staff to fulfil online orders. As more online grocery orders are processed, dark stores continue to trend and more are being purposely built rather than being converted stores.
Dark stores help to create an omnichannel experience as orders are placed online and a variety of delivery and pick-up options become available.
How does a dark store work?
We’ve created a step-by-step process to demonstrate how a dark store operates – from its traditional store transformation to how customers use it.
- An operating retail store is transformed into a staff-only micro fulfilment centre (a.k.a a dark store).
- The dark store makes the space more efficient for online orders – changing the layout, adding new products and introducing automation.
- Customers can place an online order for the products they would’ve picked up in-store.
- The order is placed at the closeby dark store for speedy fulfilment.
- Workers work alongside automation tools to quickly fulfil the order.
- Customers have the option to choose a convenient and fast delivery. Alternatively, they can pick up the order in a dedicated pickup spot within the facility or opt for curbside pickup at the location.
The rise of online grocery orders and the start of dark stores.
Traditionally, dark stores are a direct result of the increase in online orders and general e-commerce sales. While the COVID-19 pandemic created an influx of dark stores, dark stores have been around long before the pandemic. Prior to COVID-19, dark stores for grocery orders were already common around the world, specifically in the UK, France and China. Some of the first dark stores appeared in the UK in 2009, when Tesco supermarket built four dark stores to fulfil online orders within high-demand areas. Since then, dark stores have consistently popped up as more UK shoppers placed online grocery orders. Closer to home, Whole Foods converted two locations into dark stores due to the number of online orders.
In Canada, dark stores are still a very new concept, but it won’t be long before these micro fulfilment centres are big news here, too. The growth of online grocery orders has skyrocketed in Canada due to COVID-19 restrictions. Pre-COVID-19, only 1.7 % of groceries in Canada were purchased online Research conducted in April 2020 found that 30 % of Canadians were now shopping online for groceries.
How dark stores are being adopted by retailers, too.
As e-commerce continues to grow in preference, we’re seeing the adoption of dark stores shift further into the retail space. Due to the pandemic, Bed, Bath and Beyond is transforming about 25 % of its stores in the U.S. and Canada into temporary fulfilment centres. And Kendra Scott, a U.S.-based jewelry brand, quickly turned its 108 stores into fulfilment centres due to the rapid rise in e-commerce orders.
While the pandemic is largely to blame for these examples, experts predict that retail dark stores will stick around, while others may shift to a hybrid version of a dark store. Some retailers will likely transition some of their stores into “semi-dark stores”, turning portions of their stores into mini fulfilment centres, while the other portion remains open for customers to shop in-store. Alternatively, we may see more stores offer a timed approach – opening its doors each day for in-person shopping until a specific time when it becomes a fulfilment centre only.
What are the benefits of dark stores for retailers?
Here are some of the main benefits of dark stores for the retailers:
- More products held – As the stores aren’t open to the public, it allows for the space to be used differently. For example, more space is used for inventory storage and organized to allow for easy fulfilment.
- Cost-effective use of space – By using an old store, there’s no need to open up a new warehouse. This allows for fewer setup costs as stock/equipment is already in place to be utilized.
- Increased efficiency – Also, customers aren’t trying to shop in-store, so workers are able to navigate an optimized layout for online orders (e.g. grocery stock arranged by popularity rather than by food group).
- Accurate inventory – Dark stores are smaller than most fulfilment centres and are generally in dense areas. Therefore, it’s easier to predict stock levels and identify lines where there is too much/too little stock availability to service the designated area.
- Scale online – For businesses with little or no e-commerce capabilities, dark stores offer an efficient way to provide an online shopping option. Plus, if your customers have a convenient online experience, they will be more likely to place additional online orders.
- Reduce the environmental impact – The fulfilment centre is closer to consumers, so the last mile of delivery is reduced.
- Automation can be introduced – Unlike in traditional stores where large machinery can’t get in the way of the shopper’s experience, technology that improves fulfilment efficiency can be introduced. This includes large conveyors and robot pickers.
How do dark stores benefit customers?
Here are some of the main benefits of dark stores for the customers:
- More product lines available – As the spaces can be better utilized, they can hold more products.
- A convenient omnichannel experience – Customers can conveniently choose their own shopping experience. They can order online and get delivery, or they can pick up their order from a designated pickup area within the dark store.
- Fast deliveries – Dark stores are closer to the customer’s location, so deliveries can be fulfilled in quicker time frames.
Is a dark store the right move for you?
Even after COVID-19 has subsided, we’ll be faced with a new normal. Customers will have experienced the convenience of home delivery, curbside pickup and e-commerce, and will likely adopt some of those COVID-19 habits into their everyday lives. Dark stores allow for efficient fulfilment and fast delivery of products in a way that’s beneficial to both the customer and the business.
To recognize if it’s the right move for you, ask yourself the following questions:
- Have your e-commerce purchases grown extensively during COVID-19, even in periods where in-store shopping was available?
- Has your customer base expanded in a specific area that’s not currently serviced by your stores?
- Are you looking to utilize a warehouse facility, but are concerned about costs?
- Has one (or some) of your stores experienced a steady decline in in-store sales?
If you’ve answered yes to the majority of these questions, introducing a dark store into your retail strategy could be right for you.
How do you successfully turn your store into a dark store?
If you’re thinking about utilizing a dark store model, here are some tips to ensure you get your strategy right:
Ensure there’s demand for a dark store. While a dark store provides more warehousing space to expand your product lines, it doesn’t necessarily bring more demand for your products. Make sure there is already the need for a dark store – are you running out of space in your current storage facilities? Is there a demand for additional products to be held in storage? If the answer to these questions is yes, a dark store might be right for you.
Robots aren’t necessary. Dark stores sound very futuristic – that’s probably because, in most articles about dark stores, they’re referenced with having a lot of autonomous gadgets to help with fulfilment. This doesn’t have to be the case, especially for smaller businesses where it’s simply unnecessary from a budgeting standpoint. Autonomous help can be introduced down the line if and when it’s required for efficiency.
Location is key. Don’t choose a location simply for its cheap rent. A dark store needs to be somewhere central to either your business location or where a lot of your customers are. For this reason, dark stores tend to be in or around highly populated downtown areas. These locations may have a higher price tag, but you’ll likely save by offering quicker last-mile deliveries.
Don’t get left in the dark – dark stores aren’t going anywhere!
A dark store is one of many ways to incorporate an omnichannel experience into your business. Work with a delivery provider to offer a variety of shipping options – this allows for the customer to choose their own shopping experience. It’s also important to add convenient perks such as tracking, SMS messaging and remote signing for a fully streamlined, convenient delivery experience. For businesses without potential dark store locations, warehousing solutions are also available from trusted couriers. In a similar way to dark stores, these warehouses can be near to your customers, providing a convenient solution for grocery and retail fulfilment.