Juan José Salas
Managing Partner
Netlogistik
/
Expert Contributor

From Traditional Warehouses to Dark Stores

By Juan José Salas | Mon, 08/01/2022 - 10:00

Five years ago, Harvard Business Review surveyed consumers and found that 73 percent of respondents used multiple channels during their shopping experience. Using various channels is one way to help merchants and brands increase sales and revenue. The key for organizations is knowing their customers, knowing where they tend to buy, and finding them on each of the platforms with the content they need to become customers. Other ways merchants can take advantage of this trend include optimizing e-commerce sites for mobile devices, creating a mobile app, and offering purchase options, like buying online and picking up at the store or receiving home deliveries.

The e-commerce boom has generated supply chain saturation and has affected retailers’ ability to meet their deliveries and replenish their stock as quickly as customers demand. Faced with this request for orders that do not stop, many companies have begun to consider their versions of ghost stores, also known as dark stores, to be able to successfully address the high entry of orders only online.

What Is a Dark Store?

Dark stores are shops dedicated to selling virtually, without the need of having a physical store for the consumer. This space is intended only for logistical and administrative operations that do not have contact with the customer.

They are located at strategic points, usually close to places of greater demand, which receive orders from users on an application or online store, and from there, orders are prepared for shipment.

The main challenges are speed of delivery and inventory management: customers want to buy and receive as soon as possible. If they do not find what they are looking for, they simply look elsewhere. This forces e-commerce business owners to strike a balance between insufficient and excessive inventories. It is therefore essential to determine which products are most in-demand in each area to have inventories up to date and have software to optimize delivery routes and connect customers with their orders.

Which Systems Are Recommended for a Dark Store?

  • Order Management System (OMS):

The focus of OMS is to continuously monitor the availability of the inventory that an organization has in all of its channels (stores, warehouses, depots, etc.) and even inventory in transit. OMS is versatile enough to manage inventory and order levels across all business channels.

Advanced OMS functionality includes the option to present to the customer information like availability in the closest store (for click and collect), or the date on which orders will be received (like Amazon). Also, an OMS should help the company to decide the most efficient way to send the inventory, such as deciding if all inventory should be shipped from the same location versus sending it from different locations that are closer to the customer.

  • Warehouse Management System (WMS)

WMS records virtually all operations in a warehouse. In addition, many WMS offer integrations for online markets through interfaces to automate e-commerce compliance. WMS can also be integrated with OMS to provide complete inventory visibility as you move through the warehouse. This connection strengthens the relationship between business and customers by:

-Improving supply chain efficiency as both the business and its customers know where the inventory is at all times 

-Reducing errors

-Improving customer experience with increased visibility and open communication

-Saving time

  • Last-Mile Management Systems

Efficient last-mile management represents benefits for both the customer and the business. The most useful of these systems is the delivery of the products promptly, as well as providing customers with a satisfactory experience by informing the status of their order (for example when the order is being picked or if the order has been shipped and has left the store) and expediting the organization of deliveries. This allows companies to reduce their logistics costs without increasing the price of their goods and increasing customer satisfaction.

What Benefits Does it Provide?

By having the right infrastructure in dark stores, the benefits can be as follows:

  • Increased capacity

Exclusive online order fulfillment allows you to scale and grow without space constraints. In addition to this, the incursion into this model allows e-commerce companies to serve audiences with very specific delivery options (such as click and collect, delivery destination different from the origin of the order, etc.)

  • Improved order fulfillment

Real-time visibility of inventory availability ensures reliable inventory for sale.

  • Improved efficiency

Online order fulfillment lies in the distribution design of a dark store. Without physical customers, dispensers can do their job with fewer errors and maximum efficiency. In addition, it improves response time for ordering and shipping.

  • Operations 24/7

Dark stores do not depend on peak shopping hours. By operating 24 hours a day, they can fulfill more orders in less time.

  • Lower costs

It’s less complicated to manage dark stores than a traditional retail store. Because these locations do not cater to the general public, they do not need to have all the design and branding elements needed to build a physical point of sale, and therefore require less labor.

Global economies will eventually recover and dark stores will be permanent additions to retail options for consumers in the new normal; they’re here to stay.

Organizational change is not without challenges, however. Dark stores need infrastructure and process automation to avoid human error and delivery delays.

With so many alternatives available, businesses that offer faster deliveries and lower costs will be the most successful. Companies must prepare and adapt to these trends as soon as possible to be competitive.

 

*This article was written in collaboration with Edgar González, a manager with more than 10 years of experience in the implementation of systems for Supply Chain and with experience in dark stores.

Photo by:   Juan José Salas