What Is a Dark Store? Benefits, Challenges, and Strategies
Discover the concept of a dark store, its role in the retail industry, and strategies for managing this new model in the eCommerce and pandemic era.
Looking to maximize your retail success with a dark store? Kick your delivery processes into high gear with optimized routes. Circuit for Teams can help.
Remember when “going shopping” meant battling crowds in your local retail store on a busy Saturday afternoon? Those days might seem like a distant memory in the online shopping era.
With the pandemic dramatically shifting the retail landscape, the boundaries between physical stores and online platforms have blurred. Today, retailers worldwide are redefining their business models, and the dark store concept has emerged as a key player.
Dark stores offer an innovative approach to meet the demands of modern-day shoppers, promising fast delivery while overcoming the challenges of traditional stores.
In this article, we’ll explain what a dark store is, its benefits and challenges, and strategies you can adopt to leverage this business model to its fullest potential.
- Dark stores focus solely on fulfilling online orders and may not serve walk-in customers, offering faster and more efficient deliveries.
- Supermarkets, big retailers like Walmart and Target, and even small local shops can benefit from the dark store model. Online giants like Amazon use them for specific services, such as Whole Foods orders.
- Key challenges include managing high real estate costs, integrating new technology, ensuring real-time inventory management, and predicting demand for stock.
- Retailers can use strategies such as converting existing spaces into micro-fulfillment centers, integrating robotics, leveraging AI, and partnering with third-party logistics providers.
- The rise of dark stores signifies a significant shift in retail, catering to the increasing demand for online shopping.
- Tools like Circuit for Teams can help optimize delivery routes for dark stores, so goods reach customers faster.
What is a dark store?
Picture a bustling store full of activity. Employees hurry around picking up items, there’s the hum of conveyor belts, and boxes are being swiftly packed.
But something’s different — there’s not a shopper in sight. No kids pleading for candy, and no carts accidentally ramming into your heels.
Welcome to the world of dark stores.
A dark store is a distribution center designed solely for online orders. It’s a brick-and-mortar location, but without the traditional customer experience we’ve come to expect.
These places are customer-free — hence the “dark” label. In fact, they’re often repurposed from traditional retail spaces.
But unlike traditional retail spaces, dark stores are optimized for order picking and dispatch rather than for in-person shopping, so they don’t have customers visiting the location.
Major players like Gorillas have taken New York by storm, showcasing the success of this model. These establishments prioritize customer demands, sometimes ensuring same-day delivery, especially for time-sensitive products like grocery delivery.
Dark stores allow companies to stock goods closer to the customer, facilitating quicker dispatch and delivery.
What is the difference between a warehouse and a dark store?
A warehouse is like a big storage room. Imagine a massive place filled with boxes and products stacked everywhere.
Warehouses often serve as central storage hubs and can manage inventory for multiple retail locations, as well as eCommerce operations.
Things stay here for a while, waiting for their turn to be sent to stores or directly to customers’ homes.
Now, think of a dark store as a shop you might visit, with shelves and aisles just like any store. But there’s a twist: no customers walking around.
Why? Because this store isn’t for in-store shopping. It’s just for filling online orders.
Workers pick items off the shelves quickly to send them straight to online shoppers. Think of it as a physical store without the shoppers.
How does dark store order fulfillment work?
Ever wondered how your online shopping goes from a click to your doorstep? Dark stores are one of those ways. Let’s look at the three ways they make it happen.
Interested in more details on retail fulfillment? Check out our guide.
You click the “buy” button and, behind the scenes at a dark store, store employees pick the products, pack them, and hand them to delivery personnel to get the goods to you.
Sounds simple, right? But things can go wrong along the way.
For example, a worker could accidentally pick the wrong item. To combat this, many dark stores have inventory management systems.
These systems provide employees with exact locations and images of products, reducing the chances of errors. Some even have real-time scanning where the worker scans an item, and the system immediately checks if it matches the customer’s order.
Another potential obstacle is the delivery of your order. There might be traffic, road closures, or just a high volume of deliveries in one area causing delays.
This is where Circuit for Teams comes into play.
Our last-mile delivery software allows for route optimization — a technology that figures out the quickest, most efficient route for every delivery.
Instead of drivers guessing the best order to drop off packages or taking a longer route unknowingly, route optimization considers all stops, traffic patterns, and even delivery windows to plan out the best route.
Fast and efficient routes make for awesome deliveries and reduce fuel and delivery costs.
With curbside pickup, customers order online, drive to the store, and have their items delivered right to their vehicle.
This one’s for those who are always on the go. You shop online, hop into your car, and zip to the store.
Instead of going inside, you can chill in your ride, and voilà, someone brings your order straight to your car window.
You get a text on your phone or an email when your order’s ready to be picked up.
While the dark store concept is normally customer-free, some offer in-store pickup points.
It combines the immediacy of physical stores with the convenience of online shopping, giving you the best of both worlds.
Now, even though dark stores don’t usually have customers walking around, some have special counters just for pickups. It’s like a speedy checkout line.
You shop online, but instead of waiting for delivery, you drop into the store and grab your stuff.
Benefits of having a dark store
Let’s take a look at some of the top benefits of having a dark store.
- Rapid delivery
- Urban efficiency. Dark stores strategically located in densely populated cities, like Los Angeles or Brooklyn, act as a boon for online shoppers. With the hustle and bustle of city life, traditional deliveries from distant warehouses can be bogged down by traffic and distance. However, dark stores, being closer to customers, can dispatch orders quickly and efficiently with fewer square feet than traditional stores.
- Efficient inventory management
- Better customer experience
Is a dark store right for your business?
Imagine it’s a bustling Saturday evening, and you’re trying to figure out how to keep up with the rush of online orders. A dark store might be the solution you’re looking for.
There are two main considerations: the industry you’re in and what your customers are looking for.
Let’s start with popular industries for dark stores.
Supermarkets are a great fit for dark stores. With people scrolling through fruits and veggies online rather than strolling through aisles, dark stores have proposed an attractive solution.
If you’re selling perishables, a dark store can be a good way to deliver anything from fresh croissants to fresh-pressed cold juices.
Now, let’s talk about the big players — the Walmarts and Targets of the world. They have major financial power and can easily take their retail knowledge, squeeze it into an efficient dark store, and enjoy faster deliveries to happy customers.
But, wait! If you’re thinking, “I’m just a small retailer; this isn’t for me,” think again.
Local shops and specialized stores can jump on the dark store bandwagon too. You can compete with the big guys in your local market, offer quick deliveries, and boost your online sales.
Of course, those who started as online legends (yeah, we’re looking at you, Amazon), have expanded their empire with dark stores to fulfill Whole Foods orders. It’s like going back to their roots, but with a twist.
More storage, faster deliveries, and no need for fancy storefronts to impress customers.
Finally, dive deep into what makes your customers tick. If they’re all about the instant gratification of online orders and doorstep deliveries, a dark store is your golden ticket.
But if they’re the romantic types — longing for a stroll down the aisles, feeling fabrics, or enjoying the heady scent of grocery store produce — then they might be looking for in-person shopping.
If your industry fits the bill and your customers are looking for this fulfillment model, then a dark store may be the right choice for your business.
Challenges of dark stores
Dark stores aren’t without their fair share of challenges. Here are a couple:
- Real estate expenses. Cities, especially trendy spots, don’t come cheap. This can make the initial setup cost of a dark store high, especially when balancing the need for proximity to customers and affordability. It’s like trying to buy the last pair of designer shoes in a sale — high stakes, high price.
- Tech costs and learning curve. Just like trying to set up your grandma’s new smartphone, integrating new technology into dark stores can cause a few headaches. Not to mention the heavy coin you have to drop just to get started.
- Employee training and retention. As the dark store model is still the new kid on the block, employees need special training to get into the groove — and turnover rates across the board are high, especially in warehousing where there’s a 49 percent turnover rate.
- Customer perception. Some shoppers adore the idea of online everything. Others miss the joys of “touch and feel” shopping. This model wouldn’t be a great fit for them.
- Inventory management. Imagine keeping track of a room full of bouncing pingpong balls. Now, think of that with perishable items. You have to keep your stock updated in real time or face the wrath of a customer who didn’t get their fresh avocado.
- Demand forecasting. Trying to predict online shopping demands is like guessing the next twist in a telenovela. The ebb and flow can be unpredictable, and it’s crucial to get it right to avoid overstocking or running dry.
10 strategies for optimizing the dark store model
When it comes to the dark store model, there’s a lot of room for growth. And there are strategies to help you optimize and improve your operations. Let’s look at a few tips for your store operations.
1. Operate as a micro-fulfillment center
Ever thought about giving a corner of your store a little makeover? Many businesses are!
They’re turning parts or even whole stores into micro-fulfillment centers. A micro-fulfillment center is like a mini-warehouse, often nestled in urban areas or within existing stores. They’re close to customers, enabling fast deliveries.
2. Use robotics
Leading companies like Amazon are integrating robotics to expedite the pick and pack process.
Robots pick and pack items, making fewer mistakes than humans. It’s a blend of efficiency and precision, transforming the way we think about order fulfillment.
If you use robotics, then you also won’t have to hire and keep as many employees.
3. Use apps to streamline operations
Apps are the silent heroes behind the seamless functioning of many operations — and dark stores are no exception.
By simplifying online order processes, tracking inventory in real time, and coordinating delivery times, many apps can help businesses run like well-oiled machines.
4. Collaborate with retail platforms
Thinking of broadening your online sales horizons without denting your wallet? Teaming up with retail platforms like Instacart might be your golden ticket.
These platforms have already set the stage with their e-commerce prowess, sparing you the hassle and high costs of setting up a delivery infrastructure from scratch.
By jumping on board, you not only tap into their extensive user base but also get a smooth entry into online retail. It’s a savvy move for retailers who might be new to eCommerce or those looking for an efficient expansion strategy.
5. Convert underutilized space
You know that quiet corner of your store where only the odd customer wanders and dust bunnies have started holding conventions?
Why not turn it into a buzzing dark store zone?
Retailers with spacious stores are getting creative, transforming these underused areas into mini-fulfillment hubs. By doing so, they’re maximizing every inch of their property and catering to the online shopping crowd, all without needing an entirely new building.
In essence, it’s about making the most of what you already have.
6. Utilize third-party logistics (3PL)
Stepping into the dark store realm might seem daunting, especially if you’re running a small to midsize business.
But you don’t have to do it all alone.
Enter third-party logistics (3PL) providers. By teaming up with these logistics pros, businesses can offload the nitty-gritty of order fulfillment.
3PL refers to companies that handle logistics services for other businesses. These services can include warehousing, transportation, packing, and inventory management.
Basically, if you’re a business that wants to sell products but doesn’t want to deal with the hassle of storing, packing, and shipping them, you can hire a 3PL company to do that for you.
They manage the behind-the-scenes logistics, freeing you to focus on product development, marketing, and other core business activities.
7. Maintain real-time inventory management
The magic of online shopping can quickly fade if a customer’s chosen item is unexpectedly out of stock.
By maintaining real-time inventory accuracy, your business can be on top of what’s available and what’s running low. This not only avoids the dreaded “Sorry, out of stock” message but also makes sure your money isn’t wasted on overstocking items that don’t fly off the shelves.
The result? A happier customer who gets what they want when they want it and a business that’s smarter with its stock.
8. Customize your store layout
When we talk about a shopping experience, we often think of the customer strolling the aisles.
But in the world of dark stores, there are no customers.
You want to design your store layout for your pickers. For them, a well-thought-out store layout can be a game-changer.
If products are logically organized, a picker can swiftly move through the store, collecting items for online orders without breaking a sweat.
Check out our efficiency-boosting layout strategies for some good ideas.
9. Integrate automation in operations
By integrating automation into dark store operations, businesses can rev up their efficiency, cut down those pesky human errors, and race through order fulfillments at breakneck speed.
Take, for instance, the automated storage and retrieval systems (ASRS). These high-tech systems can retrieve items from shelves with the precision of a surgeon and the speed of a cheetah on roller skates.
Not only do they save time, but they also maximize space, so every inch of your storage is used optimally.
10. Leverage AI and machine learning
The future isn’t flying cars (well, not just yet) — it’s artificial intelligence (AI) and machine learning (ML) making our shopping experiences smoother.
AI and ML have the impressive ability to analyze heaps of data, make predictions, and adjust strategies in real time.
For starters, they can predict the ebb and flow of demand, so you have just the right amount of stock on hand.
This tech can also optimize inventory management, so products are stored and retrieved in the most efficient manner.
They can even guide pickers on the quickest routes through the store, turning what was once a maze into a breezy walk in the park. Learn more about supply chain optimization.
Find success as a retail business with dark stores
Retail is always changing and, to succeed, you have to be able to change with it. Dark stores are not just a trend — they’re a revolution, offering agility in a high-speed, online-centric world.
For retailers ready to turn the lights on and navigate this new terrain, this business model can propel your company to the next level.
And while you have the inventory side of things in check, timely and efficient deliveries are what truly seal the deal.
Route optimization is the torchbearer here. Eager to ensure your goods hit the right doorstep swiftly and seamlessly? Circuit for Teams can help.
Offering powerful features such as route optimization, real-time customer notifications, and seamless integrations, it's more than just a tool — it's the future of efficient deliveries.
Dispatchers can quickly plan, optimize, and assign routes. Circuit calculates the most efficient route in seconds, considering every possible factor that could influence delivery timings.
Last-minute changes? No problem. Live tracking and route management allow your team to adapt to unexpected changes.
In-app features enable drivers to capture photos and signatures, creating a paper trail that’s visible to dispatchers — vital for addressing disputes or confirming successful deliveries.