The future of retail: Dark stores?

COVID-19 is an accelerant of change, retailers need to get creative to give these customers the experiences and levels of service they expect. It’s clear that online shopping has proved large growth in markets like the U.S and even U.K. grocers have doubled capacity of delivery but still cannot meet demand.

When consumers order a product online, they expect prompt delivery. For instance, more than half of U.S. consumers under the age of 25 say same-day shipping is their top purchase driver. Speed creates the biggest advantage in retail, especially in grocery industry, as freshness is paramount. Now even that grocers compete against retail giants promising same-day and two-hour delivery, micro-fulfillment makes strategic sense. How can retailers meet customer demand as it moves from in-store shopping to these relatively new channels?

Perhaps, it is time for retailers to consider moving away from a centralized fulfillment model that often comes with high distribution costs and longer delivery times to dark, urban, and smaller stores. Rather than picking for online orders from open stores, which worked as a short-term but expensive solution, savvy retailers will add more dark stores to serve as local fulfillment centers. Dark stores are a cost-effective way to shorten delivery times and give retailers the ability to make more strategic inventory choices by location. The benefits of decentralized fulfillment are accessibility and scalability. In grocery, it estimates that the cost of delivering goods from central warehouses is usually around two times higher than using micro-fulfillment in stores.

Walmart has trained more than 30,000 workers to fulfill customers' online grocery orders
Walmart has trained more than 30,000 workers to fulfill customers’ online grocery orders

However, this decentralized model requires a granular level of inventory data to ensure that each dark store is appropriately stocked with an assortment that has local appeal. Shoppers placing online orders expect that they will be presented with accurate, local availability information and planners need to be able to adequately meet demand with minimal stock-outs.

One more thing that retailer would take into account as well is that if a majority will still remain dark once things normalize. The answer might be not, because most of them are in ridiculously expensive locations and are configured to serve customers. For example, if you wanted a dark store to serve NYC, you would not locate it there and you wouldn’t have that space configuration. Online is unprofitable enough without adding very high-cost fulfillment locations into the mix. What we will see could be a hybrid model. The locations are designed to fill shoppers’ online orders while allowing traditional stores to “continue to serve the needs of those who enjoy the in-store experience. That’s the best way to maximize profitability and deal with shifts in demand.

 

 

Riley Dang
Author:
Data and process-driven business consultant with a demonstrated history of working with retailers. My aspiration is to help businesses to scale-up and thrive by implementing unified systems.

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