Rise of the Dark Store Fulfillment Model: How Unified Commerce Makes It Possible

Rise of the Dark Store Fulfillment Model: How Unified Commerce Makes It Possible

Rise of the Dark Store Fulfillment Model: How Unified Commerce Makes It Possible

In September 2020, about six months after the pandemic drove people into their homes and forced mandatory shutdowns across the globe, Whole Foods opened its first online-only store.

The store was created to keep up with the high volume of digital orders in a busy Brooklyn suburb. Staffed by hundreds of employees, the “dark store” remains dedicated to facilitating web-based grocery orders for local delivery.

Since then, other large grocery retailers including Kroger, Giant Direct, and Stop & Shop have opened dark stores in select locations.

What is a dark store?

Dark stores are physical stores that operate with an online-only model. Some are former brick-and-mortar retail locations now shuttered to the public and converted into fulfillment centers. Others are dedicated facilities located in industrial parks which use staff and technology specifically calibrated to pick and fulfill internet orders.

The exact dark store model varies depending on the type and size of the retailer using it. In some categories, like groceries, it’s not just about turning the store’s square footage into a warehouse or fulfillment center for eCommerce orders. It’s also about providing rapid delivery and/or order pickup of goods to local customers.

Many post-pandemic dark stores look like regular stores, down to the stocked aisles and shopping carts, but they operate like micro-warehouses and fulfillment centers.

Although the dark store model was embraced by grocery retailers early in the pandemic when customers were unable or unwilling to enter physical stores,  this model isn’t anything new in retail. Dark stores actually began to emerge about a decade ago in the UK.

The original dark store was created in 2009 by the UK’s largest grocery chain Tesco, which opened the first zero-customer locations to help manage what amounted to nearly 500,000 online orders per week.

Like many retail trends, today’s dark stores are the acceleration of a post-pandemic phenomenon that was being tested by major retail chains including Walmart, Albertsons, and Hy-Vee as early as 2019.

How does a dark store work?

Dark stores enable retailers to prepare web-based pickup orders without having to contend with in-store foot traffic. These customer-free stores typically serve a local region, with employees making rapid same-day deliveries or preparing online orders for shipping and pick up.

Companies like Jokr, Gorillas, and Buyk are also cropping up to serve the dark store model and provide “ultra-fast, same day delivery.”

Dark stores operate as micro-fulfillment centers. They are essentially mini eCommerce warehouses and distribution hubs that quite literally connect the online and offline shopping journey into a single entity, a manifestation of modern commerce.

The typical requirements of a dark store are:

  • It can receive and process online orders.
  • It’s located near its core customer/market base.
  • It’s equipped for rapid, on-demand order fulfillment—this often means same-day delivery or pick up.
  • It can manage inventory across different locations and suppliers.
  • The store layout is configured for rapid picking of orders, rather than designed to maximize customer foot traffic and time spent in-store.
  • It utilizes a trained team of employees dedicated to picking, preparing, and delivering orders.

At first glance, dark stores may look like regular stores. The Whole Foods in Brooklyn that opened two years ago still operates as a dark store. From the outside, it looks like a regular Whole Foods, but it remains closed to customers (much to the dismay of many locals who’ve visited the location only to be turned away.)

Benefits of the dark store retail model

Developing new fulfillment models is a crucial way that retailers have weathered the uncertainty of the past two years. As consumers turned to online channels to buy their goods, eCommerce sales soared, growing by 14.2% in 2021 versus 2020.

Although this was down compared to the record 32% lift in eCommerce sales in 2020, it implies that pre-pandemic shopping behaviors aren’t likely to return anytime soon, if ever.

Dark stores are also helping retailers fulfill eCommerce orders during a time when availability for warehouse space is at an all-time low and asking rents are at a record high.

Benefits of going dark include:

  • Facilitates same-day delivery and reduces last-mile delivery costs thanks to proximity to customers—this gives smaller retailers the ability to compete with larger big box stores (or Amazon).
  • Helps store owners manage inventory variability more effectively by reacting to shoppers’ demands in near real time (e.g., reduce out-of-stocks, avoid overstocks, etc.)
  • Helps manage stock rotation more effectively, particularly for items with a short shelf life by storing them at the appropriate temperature for longer and getting orders to customers more quickly.
  • Can potentially reach a bigger market due to the 24/7 online order accessibility combined with the ability to optimize store layout to improve product storage capacity (and thus house more products).
  • Requires minimal staff since there are no customer-facing requirements.

Retail technology makes running a dark store possible. Companies that want to convert a brick-and-mortar location into a dark store will need a flexible inventory and order management system (OMS) that aligns online orders with various local fulfillment options.

Flexible order management puts retailers in control 

The dark store model combines online ordering with the convenience of local shopping. This requires technology that can help you balance your inventory, customize workflows specific to the dark store model, and deploy rapid fulfillment models like curbside pickup and on-demand delivery.

Kibo’s Unified Commerce Platform is equipped with all the capabilities needed to facilitate the dark store approach. This includes:

A flexible order management system—Our cloud-based OMS allows retailers to rapidly deploy and evolve dynamic fulfillment models based on your specific store and customer needs.

Inventory management software—To be successful, your dark store needs a real-time view of inventory across all channels. Kibo’s capabilities include multi-channel inventory management with a holistic view of inventory across all locations (e.g., customers can order items from a warehouse or another store location to be picked up and/or shipped from the dark store).

Omnichannel order fulfillment—You’ll want to customize your order fulfillment approach based on your specific business needs. For dark stores, that could include options like ship-to-store, ship-to-home, curbside pickup, scheduled delivery, or same-day delivery. Kibo’s commerce technology enables a full range of customizable fulfillment options that can be easily managed from one central platform.

Order routing—Getting inventory to your dark store quickly and efficiently requires an intelligent order routing system. Kibo’s distributed order routing engine supports flexible and customizable rules to help you manage complex order routing across multiple inventory locations and suppliers. This is achieved via an intuitive UI designed for non-technical users which helps minimize costs and get inventory into customer’s hands quickly.

A natural evolution in retail

Though the pandemic likely accelerated it, the dark store model represents a natural evolution in retail. What was once referred to as distributed commerce—the concept that retailers sell to customers across multiple channels—is simply the way today’s consumer shops.

Best Buy recently reported that over 40% of its online orders were picked up in stores while Target fulfills two-thirds of its online orders in stores. Dark stores are just another piece of the omnichannel shopping puzzle, providing the convenience of local delivery and/or pickup for customers while enabling retailers to leverage once-busy retail space for warehousing and fulfillment needs.

Want to create memorable omnichannel commerce experiences for your customers? Kibo can help! Kibo’s Headless eCommerce platform enables retailers like Adidas, Office Depot, and Helly Hansen to deliver personalized, omnichannel shopping experiences to their customers.

Contact a Kibo sales associate to better understand how our headless API-first architecture can help power a dark store approach for your business.

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