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Saying that the e-commerce market is booming is an understatement. The sector is growing every year and shows no signs of slowing down in the coming years. This continuous growth also brings challenges for retailers. For example, consumers are becoming increasingly demanding in terms of delivery costs, speed and flexibility, retailers are faced with rising cost associated with deliveries and sustainability is becoming an increasingly important theme within the e-commerce sector. In addition, many omnichannel retailers see an increase in conversion to their website at the expense of the physical store. To meet and overcome these challenges, more and more retailers are opening dark stores in cities. In this blog post we give seven reasons why all retailers need to be aware of the dark store concept.
The term ‘dark store’ refers to a miniature warehouse-adjacent space that caters exclusively for online shopping. This can be an existing store during non-function hours or a separate location. It is meant for storage, sorting and handling online orders. A dark store is different from a regular store, because a dark store is completely focussed on fulfilling online orders, while regular stores are more focussed on in store sales. In comparison with a distribution centre, a dark store is located in close geographic proximity to the consumers, which makes it convenient for easy pick-up and/or fast delivery. An alternative to a dark store is ship-from-store, where the store is servicing online customers and in store customers.
The original dark stores were launched in the United Kingdom. Tesco opened its first dark stores in 2009 to provide online shoppers with the convenience of click-and-collect delivery. While the dark store concept is not new, its use is becoming increasingly popular these days. More and more companies are entering the dark store business. Especially rapid grocery initiatives that use dark stores have exploded in the last few years.
It is not surprising that more and more retailers are opening dark stores, because the dark store concept has many benefits. Here below, you can see some of these advantages for retailers.
Consumers who shop online attach value to various factors in the purchasing and delivery process. However, shipping costs and speed are often seen as the most important. By using dark stores to deliver online orders, it is possible to source products in close geographic proximity to the end consumer. Dark stores are mostly located hyperlocal, meaning they are close enough to where consumers live to enable more seamless and rapid delivery service at relatively low costs. These factors enhance the consumer experience, which can lead to repeat customers.
By implementing a dark store, retailers can significantly reduce their costs. Because dark stores are located hyperlocally, it is possible to reduce the last-mile delivery cost. Moreover, research from Capgemini shows that if 50% of deliveries are done through dark stores, it could improve profit margins by decent percentage points. In addition, dark stores are generally more affordable to manage than conventional stores. Since the retailer`s sales platform is the website, most consumers will never see the store. The store therefore does not have to look aesthetically pleasing, but above all must be practical and accessible to the staff. This saves costs on store design and layout. This, together with the lower picking costs, means that dark stores are often relatively cheap to operate.
Dark stores serve as micro-fulfilment centres that support scalability and expansion. With a dark store, retailers can therefore quickly respond to consumer needs. This also applies to specific preferences regarding delivery time and location, and delivery options, such as curbside pick-up, in-store pick-up and home delivery.
As more and more consumers order their products online, retailers see the number of visitors to their store decrease. The global COVID-19 pandemic has only reinforced this trend. By converting a brick-and-mortar store into a dark store and moving the fulfilment process to the dark store, the number of vacant retail spaces is reduced, stores are used efficiently and sales are increased.
Normally, inventory management is a tricky part of running an online store. However, dark stores are much easier to manage inventory levels than conventional warehouses. This is mainly due to the fact that dark stores are relatively small. Dark store operations give retailers a better view of stock levels, allowing them to make better inventory decisions. Better inventory management has the advantages that the level of service and margins are increased and the order and stock levels are lowered.
Retailers who have implemented the dark store concept can process a large number of orders at a rapid pace. Dark stores are relatively small and customer-free, allowing order pickers to quickly collect items. This together with the adoption of the right technology and hardware, the dark store warehouse efficiency can be maximized.
Using a store as a mini-fulfilment centre is better for the environment than traditional forms of e’-commerce logistics. This is because local sourcing of products helps to reduce carbon emissions as drivers won`t have to travel as far in order to make deliveries. In addition, using a dark store reduces the number of transport movements with polluting vehicles, because products can travel in bulk to the store before they are packed for delivery to the final consumer, while parcels travel thousands or at least hundreds of miles when shipped from a central distribution centre. As consumers increasingly value sustainable businesses, using a dark store can improve brand loyalty.While the implementation of dark stores is currently the most popular among online grocery businesses, the model offers great opportunities for retailers across all industries to meet and overcome the challenges of the fast-growing e-commerce sector.