When the going gets tough, merchants get creative. During the pandemic, we witnessed hotels turn empty rooms into co-working spaces for the WFH crowd and restaurants offering takeaway menus and home delivery. Along the same lines, many retailers converted their physical stores into “Dark Stores” to cater to shoppers confined indoors.
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 struggled during the pandemic. So what separated the leaders from the laggards?
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.”
One of the ways retail stores successfully adapted their business models to the pandemic was the pivot to the “Dark Stores.”
What is a Dark Store?
A dark store is 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, which allows more space for store inventory and the opportunity 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 used variations of this process include Whole Foods, Walmart, Target, Bed Bath & Beyond, and most large fashion retailers. But as brick-and-mortar stores struggled during lockdowns, the number of dark stores grew significantly.
How Does Dark Store Order Fulfillment Work?
Using dark stores for order fulfillment is a profitable option for many different kinds of retailers. The three most common delivery options for dark stores are curbside pickup, in-store pickup, and home delivery.
Curbside pickup usually consists of a dedicated parking space where an employee will bring out the order so that the customer doesn’t have to leave their car. From a pandemic perspective, this provided the highest level of safety for customers. But it’s also a very convenient way of shopping that many consumers have come to appreciate.
Another traditional dark store option is to have a dedicated pickup area inside the store, often near the front entrance. This means customers won’t have to walk through the store to pick up their products. This option is convenient for customers and means no delivery expenses.
The demand for home delivery increased dramatically during the pandemic and works very well for dark stores. Home delivery means fast and convenient contactless delivery and is perfect for groceries and other essentials.
Benefits of the Dark Store Concept
Quick and Contact-Free Shopping
The need for social distancing and safety measures created a need and demand for contact-free shopping. Dark stores allow consumers to purchase from a brick-and-mortar retail store without entering it.
They can place their order online and pick it up or have it shipped. This way, dark stores combine online shopping safety with the (almost) instant gratification similar to in-store shopping.
Improved Distribution and Quicker Delivery
Converting physical stores into dark stores is a smart way to expedite order fulfillment and more efficiently by including various distribution options and bringing the products physically closer to a specific part of the market.
Larger Audience and Broader Reach
Turning a brick-and-mortar store into a dark store gives you a much larger potential audience, as your products are now accessible online to everyone, 24/7.
Improved SKU Management
Grocery stores especially benefited from the dark store concept, and its popularity resulted in the term “dark supermarket.” One of the reasons is that dark stores can improve SKU (stock-keeping unit) management by focusing on storage and click-and-collect capabilities. In groceries, there are almost as many SKUs as there are customers, so this is a big win for those retailers.
Improved Inventory Control and Management
In some cases, one dark store can support the retail fulfillment of several other stores in the same geographic region. As these warehouses are customer-free zones, they can better control inventory and manage larger order volumes.