Shining a light on 'dark stores'

We are living in the age of instant gratification. Heightened consumer expectations are putting overwhelming pressure on retailers to engage with each customer in real-time across every touchpoint. Increasingly, this means getting products in their customer’s hands whenever, wherever and however they want it. But it can be hard to deliver on these new fulfilment options – such as click-and-collect or same-day delivery – with traditional distribution infrastructures.

It takes meticulous logistical planning and deep insight into inventory to process these time-sensitive orders efficiently as possible. A late delivery or inaccurate order can create a poor experience that can stick in a customer’s mind for a long time. If a retailer can’t deliver the goods, a competitor that can is just a click away. Now some retailers are starting to realize that the key better customer experiences might be sitting right under their noses. Enter the concept of the “dark store.”

Part store and part distribution center, dark stores combine the best of both worlds, so retailers can quickly fulfill online orders as close to their customers as possible. These stores are closed to the public, but the layout resembles a traditional store in a way that gives the ‘pickers’ quicker access to products without any interference from active shoppers. This allows them to assemble an order as quickly as possible and send it on its way – either to a nearby traditional store for customer pickup, to a drop box location, or for same-day shipment to the customer’s home.

Public-facing stores are inherently difficult for busy order pickers to navigate. Product placement on a sales floor is optimized for the customer – not for the efficiency of picking an online order. By closing the store to the public, retailers can reconfigure the layout that works best for fulfilling orders without being hindered by customer questions, in-store promotions or checkout areas. Every square inch can be dedicated to fulfillment, allowing the retailer to stock even more product. And at the same time, this takes some pressure off retail stores by moving online order fulfillment out of the way, so sales associates can put more focus on the in-store customer experience.

A potential dark store location often already exists in a retailer’s store network. Underperforming stores in less desirable retail locations make the perfect candidate, and may bring more value as a distribution center. Ideally, dark stores sit in heavily populated areas, reasonably close to a large number of existing customer or other retail locations. This reduces transportation costs and provides quicker service – often reducing shipping time from a couple of days to a couple of hours.

The idea of the dark store has been around for several years now in the UK and across Europe, but it’s only recently begun to gain more attention, as retailers in other countries began experimenting with the concept. It’s particularly popular with grocery stores, where the consumer enjoys the benefit of ordering their entire grocery list online and having it waiting for them in the store or pick-up point a few hours later. And, this dark stores concept will only become more important as online grocery shopping is expected to quadruple by 2019 according to Packaged Facts.

The benefits of dark stores expand well beyond grocery stores, feeding the consumer’s need for instant gratification across multiple retail segments. That’s why every consumer merchant should be prepared to evaluate this strategy and its benefits. It provides a unique customer experience which, if done correctly, can engender deep brand loyalty while maximizing profits and minimizing cart abandonments thanks to short delivery times.

While the benefits are clear, what is the best way to deploy a dark store? Several pieces of a retailer’s commerce architecture need to work in concert to make it work successfully – including analytics, order management and warehouse management systems.

• Dark stores wouldn’t be possible without data analytics to gain insights into not only customer behavior but also on how to best adjust internal processes based on these preferences. Even before an order is placed, analytics help retailers to stock the most popular items where they are easily accessible for pickers in the dark store. Analytics can also examine dozens of other variables like order accuracy, order fulfillment time and inventory, as well as picking data like ergonomics and motion studies to help create more efficient processes.

• An effective order management system and warehouse management system can help retailers optimize both customer experience and the order processing at the same time. With a clear view of inventory, retailers can route the request to the right dark store in the best position to quickly pick and ship the order. Throughout the process, the customer receives real-time automated updates on the status of the order to their mobile device, so they know exactly where their order is and when it will be in their hands.

While dark stores – and the technologies to support them – are still evolving, they may not be right for all retailers. Pursuing this new scheme requires investing in technologies, infrastructure and physical space while also retraining employees. This leaves many companies questioning if they should pursue dark stores now to get ahead of the trend, or wait until a standard emerges.

For those considering dark stores, think about segmentation – a dark store is not appropriate for all products, but may be popular for a few category segments. Consider establishing a dark store for more essential products as a trial run.

At the very least, retailers need to consider every possible option to keep up with soaring customer expectations for a flawless customer experience. Dark stores can be a key part of this effort, if done correctly. The time is now for retailers to decide for themselves if dark stores are right for their customers – before they go dark on them.

Pete Wharton is the manager for Commerce Product Marketing at IBM.