The Rise of Dark Stores: Lighting Up Retail’s Ashes

Traditional retail is dying. Rising from its ashes are dark stores, like phoenixes emerging from the flames. This is how retail is reborn. 

People aren’t shopping how they used to. Rather than spend an afternoon browsing leisurely through shops at a mall, many consumers are choosing to stay at home in their fat pants, ogling products online. 

And this was happening well before the pandemic reared its ugly head. 

Changing Retail

The truth is, old-fashioned ways of shopping lost their luster, becoming more ordinary and, well… more transactional. 

Yes, shopping has always been about transactions. But these days consumers can now make educated decisions on what to buy without even leaving their homes, or sometimes even their beds. They can quickly delineate which items to purchase, and do so at their leisure.

The rise of Amazon and other online stores that deliver directly to consumers’ doors provided almost infinite choices. Shopping shifted online, helping to fuel the decline of once-prosperous chain stores like Sears, JC Penney, Payless, Toys R Us, David’s Bridal, and others, all of whom struggled to evolve and cater to shoppers’ changing desires. 

People today often have less time, yet they have more options. There are an ever-increasing number of products to buy and seemingly limitless places from which to buy. Shopping has become like an online treasure hunt.

What People Are Buying Online

As mobile devices proliferate, consumers find they can shop from almost anywhere, and you see people doing so, whenever they have some spare time. Social media sites make it easy to engage with other consumers to get recommendations and evaluate products – along with the companies that sell them – before committing to a purchase. 

Savvy customers search the web for the best prices, quickest delivery times, or order from online retailers known for their stellar customer service. These days, a brand’s reputation often matters more than price, as does an establishment’s stance on environmental issues, equal rights, or other societal concerns. 

However, people tend not to buy certain things more, such as music or electronic goods. Let’s look at an analysis from 2019, showing the proportion of digital sales out of the whole: 

  • Electronics and appliances 41.4%
  • Sporting goods, hobbies, music, and books 37.2%
  • Furniture 26.4%
  • Clothing 22.1%
  • Building & garden supplies 13.7%
  • Miscellaneous stores 11.1%
  • Health and personal care supplies 7.3%
  • Non-store e-retailer 7.1%
  • Motor vehicles and parts 3.8%
  • Food and beverages 1.6%
  • Gas stations 0.1%

Online stores don’t need to maintain stock, so actually don’t require any retail space. Online stores can just dropship their orders, negating any real commercial space at all. 

Yet dependence upon drop shipping from the cheapest supplier can also result in delayed orders, a no-no in today’s ultra-competitive online marketplace, which increasingly requires delivery in two days or less. 

That’s where dark stores come in. 

Dark Stores Rising

Essentially, dark stores are just like normal retailers with shelves full of products. Unlike a traditional shop, however, they’re not open to the public. Sometimes they’re even attached to a traditional brick and mortar business, though their “dark” area only caters for online customers. 

Dark stores maintain a portal through which they can sell and fulfill direct delivery to homes and businesses, and tend to be scattered across urban areas, placed strategically to allow for quicker delivery times. By having multiple locations from which they can ship, online businesses can lessen these delivery times even further. 

In fact, retailers like UK’s Tesco helped popularize the concept. In the years just after the millennia, they started setting up dark stores near where online orders began proliferating, helping them fulfill orders more quickly. 

Often retailers – both online and off – outsource to specialists who are better able to handle last-mile deliveries, the costliest and trickiest portion of the supply chain. In fact, darks stores are how companies like Amazon can offer lightning quick deliveries. 

Dark stores are critical for retailers who need to get products to consumers quickly. A January 2018 report from Deloitte shows how integral they are to retailers in major urban areas. In fact, it may be advantageous for traditional retailers to convert certain stores into fulfillment centers dedicated to providing same-day delivery to their online consumers. 

Essentially, a dark store is like a mini-warehouse. All of the distribution elements are there. Receiving. Storing. Picking and packing. Shipping. It’s just on a smaller scale, with picking done on a per-unit level rather than by the case. 

Instead of using an arrangement for their stores meant to keep customers browsing, as is the case with traditional retailers, dark stores need to optimize their layout to make their picking process more efficient. Just like warehouses, they can utilize software and automation to reduce picking times and increase productivity. 

In fact, many traditional stores essentially turned themselves into dark stores during the coronavirus pandemic in order to keep operating. 

COVID’s Coup de Grâce 

Speaking of which, COVID-19 pushed many traditional retailers into the red. Recent bankruptcies and liquidations have plagued once iconic brands, pushed there by the pandemic. Yet the arrival of the novel coronavirus really just hurried the inevitable. 

Brick and mortar stores that cater to shoppers have been on the downturn for the past couple of decades. The pandemic just showed us a glimpse of retail’s future. According to the US Census Bureau, online sales rose to over 16% of total retail sales in the United States during the second quarter, an almost 32% increase from the same period in 2019. 

Traditional brick and mortar stores were converted into fulfillment centers during lockdowns, as cities and states limited the number of customers who could physically go into retail outlets. Whole Foods converted some of its stores in New York and Los Angeles into dark stores, while other grocery chains temporarily made some locations into dark stores. 

Grocery stores especially have been moving towards increasing their dark stores, especially given the increased popularity of grocery delivery. Other retail outlets like Bed Bath and Beyond, Kendra Scott, and others are also making these transitions, which are intended to make deliveries quicker and reduce strain on other logistics hubs. 

The Aftermath: Shifting Supply Chains

The strain on the supply chain bent logistics capabilities worldwide, though largely logistics companies were able to cope with the increased pressure. The pandemic will change shipping globally, moving away from intercontinental flows of goods towards more regional and local supply chains, with dark stores acting as last-mile delivery points. 

The COVID-19 pandemic showed governments and businesses what happens when there’s too much reliance on centralized manufacturing nodes, as business shutdowns in China and especially in US food processing plants both led to shortages of specific goods. Nations will look to set up supply chains that can move merchandise more efficiently from points closer to consumers, and dark stores will continue to play a part in the distribution network.  

The pandemic also showed a clear upward trend in digital sales, which will only continue its upward trajectory. E-commerce is the future for retail, and distribution networks will continue to adjust to improve the process. It’s likely even as the coronavirus fades from memory that consumers who began to buy online will continue to do so.  

Disrupting Traditional Lending

Along with these novel delivery methods comes a smaller yet no less significant change. While currently, large chains are the ones developing their facilities into dark stores, transformation in the lending industry can open up options for smaller entities. 

Innovation in the lending sector is already transforming borrowing, something that can help small and medium-sized businesses with their distribution networks. As online transactions grow in popularity, financing e-commerce will also move towards more convenient and efficient methods. 

Through digital loans, borrowers will not only save money on interest payments, the whole process will become faster and simpler, cutting down the time it takes and eliminating the paperwork so often necessary to secure credit. These advances in the financial industry will revolutionize the whole loan application process down to a half-hour or less. Whereas conventional loans average over a day to authorize. 

Forbes saw changes happening back in 2014. It noted in an article that while traditional loans focus on personal credit history when approached by small businesses, marketplace lending actually looks at the health of the business. As such, digital innovation can help small businesses become more agile financially, allowing them to adopt tactics that allow them to better compete with larger competitors. 

After the Crisis Passes

Will brick and mortar stores survive? Yes, but they will no doubt look different and cater more to online consumers rather than in-person shoppers. Some major department stores and brands will emerge from the ashes, but they will need to adjust their strategies to survive, and inevitably part of this adjustment will include dark stores and direct delivery of products to consumers. 

It’s also likely things will never go back to the way they once were. In fact, an August 2020 survey in the US found almost 74% of consumers were shopping online more than they were prior to the pandemic, and 88% planned to continue even after a vaccine or other treatment is found. 

D. A. Rupprecht is an internationally-based freelance writer who writes about the intersection between technology and business. He also sometimes writes books.

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