What Is A Dark Store?

In 2009, UK-based retailer Tesco opened two store locations that offered no in-person shopping, existing solely to fulfil local online orders. This practice has continued to expand, with major retailers like Whole Foods Market and Walmart adopting the practice and investing in these locations. According to one market analysis report, the global dark store market is anticipated to exceed $129 billion by 2030.

Learn how dark stores work and the advantages and disadvantages for both retail businesses shifting to online-first operations and ecommerce brands building a local presence in areas with active customer bases.

What is a dark store?

A dark store, also known as a dark shop, is a physical retail location dedicated to fulfilling online orders through local delivery and pickup options without in-store shopping. Businesses either build new dark stores in strategic locations or convert existing retail stores to operate as non-customer-facing fulfillment hubs. Many types of companies use this business model to fulfill online orders, including businesses in the retail sector selling consumer goods, clothing brands, and grocery stores. There are also dark kitchens, or restaurant extensions that only prepare online orders.

A brand with a brick-and-mortar store selling footwear to customers in person and online might learn that the majority of its sales are online. It may decide to convert its retail location into a dark store, so it could provide quicker local deliveries and increase the selection it offers, since there’s more room for inventory without the need for customer-facing spaces.

How do dark stores work?

Dark stores operate using a similar process to traditional order fulfillment, which includes:

• Receiving. Dark stores receive orders from customers through their websites, apps, or other online sales channels.

• Picking. Once the dark store receives orders, employees or automation tools select the correct items and verify the quantities (also known as the order picking process). Dark stores organize their inventory strategically to save employees time during the picking process, using methods like clustering complementary inventory or holding the most popular items near the front entrance.

• Packing. Dark store employees package orders and prepare them for shipping. A grocery store that sells perishable goods and uses this business model (known as a dark supermarket) may pack items using special materials like insulated bags or coolers.

• Delivery or pickup. The final step in the dark store order fulfillment process is to distribute goods directly to customers, whether that means partnering with delivery companies, shipping to customers’ home addresses, or offering pickup at the dark store location.

Dark store delivery and pickup methods

• Curbside pickup
• In-store pickup
• Home delivery

Dark stores use one or more of these three primary distribution methods to fulfill orders and get products in the hands of customers: curbside pickup, in-store pickup, and home delivery.

Curbside pickup

One option is for customers to park in a dedicated pickup area directly outside a dark store. When a customer arrives, they can notify the dark store through the store’s website or app, or via text message. An employee at the dark store will receive a notification and bring out that customer’s order. 

To identify the correct customer for each order, dark stores can connect parking spot numbers to specific orders at check-in or confirm customer names and order numbers upon receipt. This is a convenient option for customers since they can pick up their items quickly without needing to leave their vehicles.

In-store pickup

A company could also offer in-store pickup at a designated area inside its dark store—typically near the front entrance of the store for convenience. By directing customers to a dedicated pickup area inside, merchants keep the majority of the dark store square footage dedicated to inventory and allow customers to pick up their orders without having to wander through the entire store.

Sometimes this option provides contactless pickup for customers. Instead of visiting a pickup counter with an attendant, customers can access cubbies or lockers with a code they receive after placing their order. Dark stores using only this pickup method can minimize labor and shipping costs, as it requires no employee-customer interactions.

Home delivery

The third method is home delivery, meaning dark stores facilitate the delivery of orders directly to customer residences. Dark stores typically focus on local delivery, with many offering “instant delivery” (i.e., same-hour delivery) for online purchases to customers within a specific mile radius. For example, a grocery store chain could open five dark supermarkets throughout a city, each offering instant or same-day delivery to customers within a 1.5-mile radius of each store. A limited delivery radius helps increase delivery efficiency and minimize delivery costs.

Advantages and disadvantages of dark stores

Although a wide range of retailers and ecommerce merchants can use the dark store model, the businesses that benefit most tend to be large companies with enough upfront capital to purchase and store a significant amount of inventory for sale to a major customer base in a specific area. For example, an ecommerce business selling and shipping a high volume of apparel products to customers primarily in Chicago could decide to invest in a dark store location to provide faster distribution for orders in that city.

Here are the advantages and disadvantages to consider depending on your business size and goals:

Advantages

Here are the main benefits of dark stores over traditional retail stores:

• Customer convenience. In many cases, dark stores offer a contact-free shopping experience with instant local delivery or scheduled deliveries. Dark stores offer delivery windows that customers can select—one McKinsey survey reports that nearly 70% of city-dwelling consumers placed importance on being able to schedule delivery times. For pickup options, customers can arrange pickup times and avoid waiting in checkout lines. 

• Product selection. Retail companies converting existing stores into dark stores can use space previously dedicated to customer walkways and display shelves for additional inventory, stocking more product variants than physical stores.

• Expanded operating hours. Since dark stores aren’t limited by the same operating hours as traditional retailers, they can begin the order fulfillment process at any time (facilitating faster distribution of goods than traditional stores) and offer expanded pickup hours.

• Increase local reach. Through efficient and convenient order fulfillment with a wider selection of products, dark stores can increase sales in a specific area—via same-day or even same-hour delivery within a defined radius, plus scheduled pickups for customers in the surrounding town, city, or county.

Disadvantages

There are some drawbacks to the dark store business model, including:

• High up-front investment. Whether a company is building new physical stores to operate as dark stores or renovating existing stores, the upfront expenses can become costly, considering equipment, technology, inventory, labor costs, and facility costs (like rent and utility expenses).

• Complex operations. A dark store requires a robust in-house order fulfillment process to facilitate instant deliveries and pickup options, which can involve a more complex process than an ecommerce business using shipping carriers like UPS or FedEx. Merchants who don’t want to handle the complex logistics of order fulfillment themselves can opt for a less involved process—like hiring a third-party logistics (3PL) service provider to store, pick, pack, and ship inventory for online orders.

• Limited delivery radius. Since dark stores deliver within a limited radius, merchants who want to offer delivery to customers throughout a wider area might benefit from opting for a different business model. Instead, businesses could consider a network of smaller, highly automated micro fulfillment centers (MFCs) strategically located across a larger market, either built as small standalone fulfillment centers or included within a traditional customer-facing retail environment. 

• Less personal customer experience. Dark stores can create an impersonal customer experience and may not suit luxury goods that rely on high-touch, consultative sales (like expensive jewelry).