Dark Stores and New Delivery Options for SMB Retailers

7th September 2020

Dark Stores are loosely defined as physical spaces within a retail facility designated to perform non-customer-facing fulfillment, such as e-commerce orders. Such spaces could be segmented areas inside a functioning store or an entire retail store front that has been closed to the public.

The borrowed term of “Dark Stores” started to get applied to what was typically called a “fulfill from store” model fairly recently, when the adoption of digitization and e-commerce accelerated and retailers converted areas of their brick-and-mortar stores to makeshift distribution centers.

When considering retail strategies, most people draw examples from experiences with large big-box retailers, such as Target or Best Buy. As such, many of the Dark Stores anecdotes are specific to how these very large organizations have handled store fulfillment, but according to the National Retail Federation, “the overwhelming majority of retailers are small businesses, with more than 98 percent of all retail companies employing fewer than 50 people”.  Small and midsize business (SMB) retailers will need to adapt just as well as the big box stores, if not better, to the new retail era, accelerated by COVID-19.

As post-pandemic retail strategies evolve, the Dark Stores concept is being floated as a way for SMB merchants to recapture demand by offering a safe and fast access to their local store inventory. Here are three considerations:

1. The expectation that forms of social distancing measures will persist over the next 12-18 months will drive retailers to look for ways to push the seasonal inventory out to the consumers as fast as possible. Furthermore, shopping habits that we have established or strengthened during the isolation months are likely to endure and become part of the new normal, which means that Dark Stores strategies could very well be long-term ones. Fulfilling from stores offers customers access to locally available inventory while allowing them to keep a safe distance at home.

2. While abandoning storefronts entirely and moving store inventory to a warehouse space might be the only available options to some, retailers should consider that maintaining a physical store front is critical for the brand recognition and loyalty. Consumers still prefer to buy from and support local businesses. Retailers can offer click-and-collect options to their customers to maintain and strengthen that loyalty.

3. A large segment of our working population is on a short-term or long-term employment hiatus. This provides retailers with access to a significant pool of local delivery personnel who would provide cost-effective delivery options for a large segment of retail categories. Whether they are hired as dedicated delivery personnel or are given broader fulfillment responsibilities, with the right tools, the logistical challenge became easier.

Large segments of SMB retailers have traditionally relied on commercial carriers for their inbound and outbound deliveries. The emergence of smaller delivery companies, prevalent in a few large metropolitan areas today such as NYC, Miami and San Francisco, is accelerating and this will present SMB retailers with opportunities to cater to their stay-at-home customers at a lower cost.

Recently, my wife needed to replace her running shoes. Her local running apparel store has been closed for over a month now and she prefers not to order her shoes elsewhere because of the relationship she built with the store owners. Over the phone, they offered to ship her the shoes via a national delivery service, which added about 15% to cost of the purchase. This an example of the type of business who will benefit from adopting new fulfillment strategies and taking advantage of what a local delivery person (or fleet) could offer.

The change in the fulfillment approach is not simple and certain retailers might be better-suited or are further along the digitization journey than others, but it is nonetheless a topic that has been recognized by SMB retailers as a way to combat the reduction in store foot traffic today and into the future.

Text by: Zaid Duwayri, General Manager, Consignor US