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The Dark Store and Omni-Channel Commerce

Dark Store

As we approach 2015, one commerce trend appears to be making its way into some retail stores around the world. Led by UK grocers and dubbed the “dark store”, this is when a retail store is open additional hours or is specifically optimized to act as a distribution center for online orders to be fulfilled from.

This trend began to emerge in late 2012 in order for UK retailers to meet the demands of growing order volumes, in particular food and pharmaceutical orders. With dark stores generating headlines in renown news outlets in the UK such as The Guardian and Reuters, more traditional retailers have begun to take note and a small number of U.S. retailers have taken steps to launch their own dark store initiatives in the past year.

So what do retailers need to know about dark stores? Here are a few things…

 

  • Two types of dark stores (both very different) – The first type is when an existing retail store operates similar to a ship from store distribution center before or after the store is open to the public. The second type is when a store closes its doors permanently to the public and in turn is optimized to be a mini distribution center. The latter can sometimes happen if a store is no longer successful from a traditional retail perspective but holds more value as a ship from store location until the retail lease ends.

 

  • Carriers can help determine dark store locations – Choosing dark store locations isn’t an exact science. Many variables including inventory, order volume, and order locations can factor into the selection of dark store locations. Some retailers have even evaluated using specific locations for aggregating products, almost as a quick replenishment facility for nearby stores.

 

  • Full time dark stores can look very different than retail stores – One of the biggest tactical decisions from a business perspective is when to take the dark store concept from just a few hours a day to a full time dark store. In a traditional retail environment, aisles are not optimized to fulfill online orders but are generally broken out by category and catered to a retail experience with clear pricing and sensible product groupings. In a dark store, products are often optimized by product volume and not category – for example, two types of shampoo that would be next to each other on a retail shelf could be on separate sides of a dark store if the product demand is significantly different.

 

  • Dark store concepts work best in highly populated areas – Although fixed store costs (lease, wages, etc.) can be more expensive in urban areas, dark stores generally perform the best in these environments. Even though the concept is fairly new in the U.S., the ability for retailers to leverage urban locations can create a significant decrease in shipping costs along with hours spent fulfilling orders from nearby stores.

 

In conclusion, the dark store concept continues to emerge and evolve in the U.S., Europe, and other geographic locations. Right now, especially in the retail industry, it’s all about learning how retailers with existing dark store initiatives operate and grow their efforts. As more retailers implement omni-channel commerce, it could be important to understand how the dark store commerce concept impacts the processes to fulfill orders from stores and to certain locations, especially during the increasingly busy holiday season.