How Dark Stores Operate and What Benefits They Bring to Your Business
Dark stores are popping up all over, and they have the potential to change the way you do business forever. If you're trying to figure out how to set up your dark store, or if you just want to know more about what they do and why you should have one, this guide will tell you everything you need to know.
What are dark stores?
A dark store is a retail warehouse that fulfills online orders. These facilities are designed from top-to-bottom to expedite deliveries and maximize operational efficiency, from labeling goods to packaging them for shipping. Since dark stores don't serve walk-in customers, businesses can reduce processing times, establish leaner inventory management strategies, improve customer satisfaction, and lower labor costs. While the concept is not new, these micro-fulfillment centers are becoming increasingly popular to keep up with consumer demands, which have rapidly shifted from brick-and-mortar to online shopping, allowing businesses to keep costs low without hurting their competitive edge.
3 Common misconceptions about dark stores
A dark store is not a warehouse or retail location closed off from shoppers. The term refers to an e-commerce-specific facility where merchants receive orders, pack their products and ship them to their customers in anonymity. Here are some common misconceptions about dark stores:
Dark stores aren't new: When Tesco opened its first one in the United Kingdom in 2009, no one knew what to think of it. Fast forward 13 years later, and more than 1000 companies have opened their own.
Dark stores don't just cater to online sellers: While online sellers represent a large portion of those who use dark stores—and for a good reason—the warehouses also serve other purposes. For example, brick-and-mortar retailers can also take advantage of dark stores to fulfill orders placed through their websites.
Dark stores are only for giant corporations: Anyone can benefit from one—from small businesses with just one retail location to larger companies with many storefronts around town. Big or small, there are benefits for everyone.
The advantages of running dark stores
One of the most significant advantages of operating a dark store is lower shipping costs since these facilities tend to be near areas that get a lot of online orders. Also, having online orders closer to their end destination can enable next-day or even same-day deliveries.
Local sourcing may also help reduce carbon emissions because of decreased driving distance. As consumers increasingly value sustainable businesses, they're likely to reward companies actively working toward a more eco-friendly retail experience. According to research by Accenture, almost half (47%) of shoppers would be willing to pay more for products if it meant that those products were made environmentally friendly or were better for the environment.
Another advantage of using a dark store is the efficient use of space. Using an empty retail location as a fulfillment center takes up significantly less square footage than a Distribution Center.
Finally, it's much easier to manage inventory levels at a dark store because there's no need for large amounts of space dedicated to shipping. The overall time required to process an order is also significantly reduced compared to using a conventional warehouse.
Running dark stores versus traditional brick-and-mortar shops
It's no secret that online shopping has been steadily gaining in popularity, partially attributed to a new generation of consumers more prone to making purchases with their mobile devices and retailers aggressively promoting online stores. But how is e-commerce affecting brick-and-mortar shops? For starters, e-commerce isn't entirely taking over; its presence has prompted many traditional retailers to start running dark stores. And while some may see dark stores as an attempt by conventional retail businesses to catch up with an increasingly digital world, operating one has several benefits.
A traditional store has many associated costs, including paying employees, utilities, and upkeep of its physical location. A dark store eliminates these expenses by eliminating walk-in customers and relying solely on online orders for sales. The true nature of these stores allows them to offer fast deliveries while remaining cost-effective. A dark store is an excellent way for businesses, big or small, to save money and make sales at their convenience.
The technology needed to operate a dark store
Utilizing the right tech can drastically improve the performance of your dark store. To make the most of it, consider the following technological additions that will help it run as smoothly as a possible:
A Warehouse Management System (WMS) is a must-have solution to streamline order fulfillment at dark stores with a high volume of orders. Since warehouse management systems can be configured for specific tasks, such as order fulfillment, inventory management, or shipping operations, one can benefit from using one at a dark store. For example, an integrated solution will make it easier for employees to track inventory and fulfill orders efficiently—and reduce errors that might otherwise occur with manual processes.
Order Management Systems (OMS) are another valuable tool for managing dark stores. Order management solutions have increased in sophistication over time, automating and streamlining order-taking. But selecting a system that works with your existing ERP or WMS is essential since data syncing can get complicated when it's not set up correctly.
You might also want to consider a Routing and Scheduling System if you're handling deliveries yourself. These solutions will help you determine which drivers to assign to each route based on their skill level, vehicle capacity, distance traveled, etc., and calculate how long each route should take so that customers receive their orders within an acceptable timeframe.
Should you run a dark store?
Whether you're looking to boost sales or get more control over your delivery operations, a dark store may be right for you. This warehouse concept can speed up delivery times because it bypasses many retailers' time-consuming supply chain processes. They have become especially popular with e-commerce companies that struggle with late deliveries. Focusing on operational efficiency, they help reduce shipping costs for retailers and faster delivery times for shoppers—an ideal combination for any growing business!
I have a BSc in Industrial Engineering from Tecnologico de Monterrey and a MSc in Financial Engineering and Risk Management from Imperial College London. I enjoy writing about the issues I’ve helped my clients solve over my almost 20 years’ experience as a supply chain consultant.