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Dark stores are set up typically near high demand neighborhoods but off the high street. For some segments, like apparel and durables, they may as well be set up on the city outskirts. They serve as mid-size local warehouses for storing, sorting, and handling orders.

Even before COVID-19 forced retailers in India, and globally, to rethink their operational strategy, retailers were grappling with profitability and growth-related challenges. Then came COVID-19- with footfalls nowhere to be seen, and customer demand moving online for more categories each passing day. Now the retail universe is fighting to address many challenges at once. Fortunately, there seems to be a silver lining amidst the ominous clouds, to address their problems:

  • Low rentals? Check.
  • Higher stock variety and availability? Check.
  • Closer to customers? Check.
  • Higher service levels? Check.
  • Suitable for online and click and collect services? Check.
  • The new way of handling the retail supply chain? Check. Well most likely!

That’s the allure of dark stores that are making their presence increasingly felt across the world in the retail and consumer goods universe.

What is a dark store?

Cut to the chase, dark stores are essentially retail stores, minus the customers walking inside the aisles. The shoppers, instead, are able to browse through the stores across different online media and applications which offer a nearly real-time view of the shelf. These stores, thus, are able to get customers the best of both worlds in terms of product variety and fast delivery. They also help retailers keep fixed costs low and make better margins through more efficient supply chains.

Dark stores are set up typically near high demand neighborhoods but off the high street. For some segments, like apparel and durables, they may as well be set up on the city outskirts. They serve as mid-size local warehouses for storing, sorting, and handling orders. Designed to facilitate quick and cost-effective picking, they are easier to automate. They can support both click and collect services as well as last-mile delivery for various online ordering platforms, within a defined service time commitment. As retailers compete for customer acquisition and retention basis cost and speed, dark stores could offer the most suitable mix to play with.

Why dark stores?

Retailers have experimented with back-end stores or dark stores – sometimes sans the tag – for more than a decade now. Given this, why are we talking about them now? The answer lies in the increasingly slim retail margins, highly competitive pressure, and rocketing customer expectations. Ultimately, the COVID-19 pandemic has acted as a shot in the arm towards faster adoption of dark stores. With customers indoors during the lockdown, visits to retailers’ websites and customer registrations have increased manifold. Over and above, digital adoption in the past few years has made India conducive to e-commerce growth. The number of Internet users in India has crossed 550 mn. in 2020, making online shopping platforms accessible to roughly 41 per cent of the population. The digital payment landscape is changing too, with more than one-third of the population having used one or more of the 50-plus wallet providers in India. All of this is making it easier for customers to shop online. All the above, coupled with changes in shopping behaviour of consumers during current lockdown have paved the way for a business model built around dark stores that can fulfill customer needs for online shopping and cost-effective, fast delivery.

Is this a global phenomenon or specific to India?

Increasingly, more and more players across the globe are adopting dark stores across sectors, including grocery, apparel, footwear, consumer durables, etc. The trend started, in a systematic manner in the U.K. with multiple chains of big supermarkets as the early adopters. The concept soon caught the attention of some of the leading global retailers in the U.S. and subsequently across Europe, East Asia, and Australia. Today multiple globally known supermarket chains are running or experimenting with dark stores with the majority of them spread over more than 100,000 sq.-ft with in-house specialised capabilities including food processing, cold press systems, butchering lines, and so on. The typical dark stores, however, are less ambitious in scope and typically cover around 10,000 - 20,000 sq. -ft space with approx. 15-20 employees operating during the typical shift. Internal estimates by some of the companies using dark stores globally suggest that adoption of dark stores add three to four per cent to the bottom line through a mix of higher customer orders and lower costs.

What does it take to set up dark stores?

There are multiple important considerations involved in setting up an efficient dark store. These include

  • Right layout and planogram, with focus on space optimisation and efficient placement and retrieval
  • Fit-for-purpose process design, with clearly defined SOPs enabling, first-time-right picking and placement, and automation
  • Strong workforce reorientation, for effective process implementation, and low error rate
  • Effective inventory planning, ensuring high stock variety, rotation, and visibility
  • Structured data analytics, to support dynamic product-mix, stock level, service level, process and productivity alignment
  • Robust digital interventions for efficient overall store operations, oversight and management.

In the context of the changing dynamics of the retail market in India, we believe that it is time for dark stores to hog the limelight. It’s up to the retailers, to adopt the idea whose time has come.

(A version of this article appeared in Economic Times - Retail.com, May 18,2020)