Dark store models are repurposed physical outlets in which the stores operate as mini-warehouses and are off-limits for walk-in customers. In fact, the outbreak of COVID-19 pandemic significantly accelerated the adoption of dark stores in many geographies. Considering key dimensions such as consumer behavior and current infrastructure, retailers typically have the option to fully transform their available physical spaces into dark stores or create a hybrid dark store (semi-dark store) model with a portion of their store still open for walk-in customers. The hybrid model serves as an omnichannel distribution hub, handling tasks like fulfilling BOPIS orders, processing BOSS deliveries, and catering to direct in-store purchases.  

These dark stores address the increasing pressure of fulfilling online orders by keeping inventory closer to customers. Additionally, the regular associates of brick-and-mortar stores are upskilled to work in the restructured model, by adding picking, packing, and delivering into their usual store operations skillset. They are also being empowered with technology and are trained to manage both cross-channel fulfillments and in-store purchases by walk-in customers.

Dark stores span various retail segments, including groceries, electronics, apparel, home improvement, and general merchandise. But, irrespective of the sub-segments, the crucial aspect is to identify the right assortment to be stocked for online channel inventory as well as for direct store walk-ins. Therefore, improving forecasting ability for in-store inventory needs will help retailers succeed in the hybrid operating structure.

Accordingly, retailers extending their operations from traditional physical stores into the omnichannel world are diversifying their retail outlets and last-mile delivery, resulting in significant change and augmentation of their traditional stores into hybrid dark stores. Many prominent retail chains are planning to convert over 25% of their retail space into dark stores.

The dark store model first gained traction in the UK, where major supermarket chains spearheaded its adoption. Then, it quickly expanded to the US, Europe, Asia, and Australia. Today, prominent retail chains are running dark stores spread over more than 100,000 square feet, equipped with in-house capabilities such as food processing and cold-press systems.

Incidentally, a leading European retailer transformed its neighborhood physical stores, in which about 90% of the warehouse space was reserved for fulfillment activities such as storing, sorting, and managing online orders and leaving just 10% accessible to walk-in customers. The stores are designed such that customers can walk in and pick up their products anytime, facilitating quick and cost-effective picking and easier automation. By doing so, the retailer has been able to reduce cart abandonment rates significantly and increase their profit margins.

On similar lines, an American multinational supermarket chain’s well established dark store model allows it to efficiently handle the surge in demand for online groceries. By further converting some of its strategically located physical stores into hybrid dark stores, they are able to offer faster delivery times, better inventory management, and maintain product freshness, thereby enhancing customer satisfaction and operational efficiency. They further offer additional fulfillment options like curbside pickup and home delivery quite seamlessly.

In the UK, a pioneering multinational groceries and general merchandise retailer introduced its first dark store in 2009, optimizing urban fulfillment through automation and improved layouts. They converted existing brick-and-mortar stores, especially those located close to urban centers into fulfillment centers dedicated to online orders, to reduce delivery times. They optimized layouts and adopted advanced automation over a period for rapid order picking, packing, and faster delivery.

Meanwhile, a global department store revamped its store network to enhance the omnichannel shopping experience. They evaluated their network to improve last-mile delivery and in-store experience, leading to some store closures and a few stores being repurposed as temporary dark stores until their lease ended. The remaining stores were optimized for the hybrid dark store model, focusing on the right product range to be stocked for online orders and better in-store inventory forecasting for walk-in customers.

Leveraging existing infrastructure and integrating advanced technologies are collectively enabling dark stores to operate efficiently, meeting customer expectations, and providing a seamless omnichannel customer experience. Bringing in the right technological elements is considered very critical to the proper functioning of a dark store. Consequently, retailers are integrating advanced inventory management systems ensuring real-time inventory updates to maintain accurate stock levels, reducing the risk of stockouts and overstocking.

Automated replenishment systems are developed to automatically order new stock when inventory levels fall below a certain threshold, ensuring continuous availability of products.

At the core, an omnichannel order management system is built to streamline order lifecycle, efficient order processing and tracking. Plus, retailers are leveraging an integrated warehouse management system for order fulfilment, to maximize the use of available store space, ensuring the layout is optimized for quick access to high-demand items. Some retailers are also taking advantage of automated picking systems using robotics and automation to assist consumers in picking items from shelves, thus increasing speed and accuracy of fulfillment.

Further, an increased use of data analytics and AI/ML helps gain insights into consumer behavior and predict customer demand. This in turn helps them manage inventory levels more effectively and set personalized communication based on customer preferences. Intelligent delivery management algorithms are also used to determine the most efficient delivery routes for drivers, reducing delivery times and costs. A real-time tracking algorithm is created to send updates to customers on their order statuses, enhancing transparency and trust. In fact, some of the large retailers are adopting the Internet of Things (IoT) with sensors to monitor stock levels and alert staff when replenishment is needed.

Finally, an increase in cloud adoption is enabling retailers to offer flexibility to scale operations up or down based on demand fluctuations.

Overall, the shift to dark stores allows retailers to cater more effectively to the omnichannel market, improving customer satisfaction and operational agility. Therefore, a dark store is one of the many ways for retailers to achieve omnichannel excellence in the current ecosystem.

Repurposing traditional brick-and-mortar stores, and the emergence of hybrid dark stores is marking a significant shift in retail operations. It has a profound impact on the acceleration of omnichannel retail strategies. Moreover, it is quietly transforming towards reshaping the future of retail industry with improved customer service, reduced cost of operations, enhanced customer experience, and a bigger geographical influence. By leveraging these advanced technologies and optimizing store layouts, retailers can efficiently manage both in-store and online orders, enhancing customer satisfaction and operational efficiency.

This evolution not only reduces costs and improves inventory management, but also meets the growing consumer demand for quick and reliable service. Nevertheless, brick-and-mortar stores will continue to play a key role in the future network of omnichannel retailing. As retailers strive to navigate the path towards omnichannel excellence, the hybrid dark store model will play a key role in their success, ensuring they remain competitive and responsive to changing market dynamics. Hence, it would be important to train, equip, and incentivize store associates adequately for a successful transformation of stores.

The challenge lies in embracing change, fostering innovation, investing in technological advancements and sustainable practices to create resilient supply chains.

1. Reimagining the role of physical stores in an omnichannel distribution network, McKinsey, December 24, 2021
2. The Rise of Omnichannel Retail: Managing Complexity, Honeywell, March 30, 2022
3. Dark Stores: The Next Frontier in Township Economies and the Impending Challenge for Retail Giants, Freddy Mahhumane, December 15, 2023
4. What is a Dark Store? Future of Grocery Dark Stores in India, Your Retail Coach, 2023
5. Unveiling the Future: Dark Stores in Retail and the Challenges Amid Giants, Tena Duvnjak, December 7, 2023
6. What’s A Dark Store? The New Player In Fulfilment, Purolator, Jul 12, 2021
7. The Ever-growing stance of E-commerce – Dark Stores and Omnichannel Retail, Ceara Sutton-Jones January 29, 2021
8. Shining a Light on the Value of Dark Stores, Garrett Miller, May 29, 2022