As last mile delivery becomes the focus for all retailers, the increasing tendency for warehouse space to be used as dark stores is impacting the warehousing and logistics industries in three main ways:
- adapting warehouse space for dark stores doesn’t just create warehouse innovation, it changes the dynamic of warehouse space, making less space available for warehouse rental
- warehouse retailing changes the transport patterns around the dark store, often bringing in customers for click and collect
- relocating pick and pack services to grocery warehouses reduces staffing at out of town supermarkets and increases it at the dark store, so ancillary services (food outlets and even gyms) are increasingly relocating to service those new employment centres.
What is a dark store?
A dark store is nothing more than a warehouse full of groceries. While some are purpose-built (Tesco has a robot dark store in Erith) others are simply repurposed warehouses like the Waitrose dark store run out of an old John Lewis soft furnishings warehouse in London. What they generally have in common is:
- A location that allows easy click and collect or delivery to a pickup location
- A degree of refrigeration
- Layout designed to speed selection
The dark store is seen as the solution to a major problem for grocery retailers, and increasingly for fashion retailers too. People are choosing to buy mundane purchases (milk, cereal, toilet rolls, sports socks, sports equipment, bedding) using click and collect because they are uniform, bulky and difficult to transport. This reduces time investment, parking and stress for the consumer, but leaves the supermarket with a problem – how to get these bulky and difficult to transport purchases to the consumer in a timely fashion?
We’ve all had the experience of dodging the ‘pickers’ in our local supermarket. With their racks of baskets and electronic pick lists, they scurry around fulfilling six or eight orders at a time. But they do get in the way of the individual shopper and – more importantly to the supermarket – the individual shopper slows down the professional picker!
The dark store resolves this problem. By stacking the same items in the dark store as in the conventional shop, but organising it for ease of picking, not customer attractiveness, supermarkets get the best of both worlds – easy e-commerce fulfillment and happy shoppers.
Why the growth in warehouse retailing?
In 2013 online grocery purchase were just 5.5% of the market. By 2023 that’s expected to double. While there’s a distinct limit to the amount of grocery shopping that we’re likely to do because people (a) like to choose certain products for themselves (b) impulse shop in particular for food, that limit doesn’t apply to other areas that are moving into dark store operation such as sporting goods retailers. Increasingly furniture and fashion retailers are choosing dark store operations alongside smaller, often experience-led retail outlets. The key feature of warehouse retailing is speed – customers expect the exact items they have ordered, in perfect condition, and within a one hour time slot, or they don’t re-use that service.
Order fulfillment services and dark stores
There are four distinct ways that e-commerce orders can be delivered to the consumer:
- Store collection – this model allows the customer to order online and collect from a retail outlet that they are familiar with
- Dark store collection – while customers cannot be allowed to enter a dark store – usually because the building is not purposed or insured for consumer use – outdoor space around the former warehouse can often be used to create click and collect points
- Designated pick up points – these can be anything from bus stations to shopping centres and are often attractive to customers when they are located along popular commuting routes
- Home delivery – completing the last mile delivery in dedicated vehicles to the customer’s home is one of the most popular ways to complete a dark store order.
Challenges to the dark store concept
There are still several major challenges to the dark store as a method of order fulfillment, notably:
- Multiple picking lines – there tends to be a hybrid model of warehouse retailing at present which creates two distinct pick lines using the same produce. The first is a line that supports the product range carried in convenience stores or small outlets and the second supports the wider product range sold in large shops or flagship stores. This is true in both grocery and non-perishable dark stores and while it balances the demands of the current retail model in the UK it is neither efficient nor cost-effective.
- Demand forecasting – traditional warehouse facilities have always constellated near transportation centres but the dark store concept requires warehousing to be near customer bases which increases demand on city-based warehousing, which is already at a premium.
- Store replenishment demands – when a dark store has stocks of something that retail units sell out of, the temptation is to transfer stock from the dark store to the retail venue. This turns a dark store into a secondary warehouse for the retailer and can interrupt its supposed function to meet online consumer demand.
- In some recent cases, the desire to repurpose existing warehouse space to dark store function has been objected to by local councils or community groups because of the impact on the local environment, on the community or on jobs. Councils dislike the ‘creep’ of the dark store concept as it has the potential to avoid paying business rates on retail properties but still be a retailer.
