Your local retail store is very likely looking toward the dark side. Or, a dark space.
Many stores, in their attempt to remain competitive with the likes of Amazon, are trying to rethink their physical footprints. Retail’s supposed death is certainly exaggerated, but as shopping habits changes, real estate efficiency is of even greater importance. That’s where dark spaces come into play. They are essentially all of the parts of a store that aren’t the sales floor. Traditionally, companies wanted as much space to sell people their items as possible. Now, retailers are realizing they need to better organize the four walls they have to facilitate omnichannel programs like online sales and buy online pickup in store. That’s leading to more dark spaces, which are used in different ways to improve shipping programs.
Innovative store use has become a competitive advantage. Walmart earlier this year said it was working to get 75% of the country next-day shipping on select products; it uses its over 5,000 locations to make this possible. Target too has been rolling out curbside pick-up nationwide — and store redesigns have helped make this logistically possible.
While not a new concept — indeed, non-sales portions of stores have been around since the beginning of stores themselves — retailers are upgrading their floorpans and workforce to be better equipped for all kinds of sales channels.
“The concept [of retail dark spaces] is pretty old,” said Bryan Gildenberg, Kantar’s chief knowledge officer. Stores for decades have used their physical locations as redistribution hubs in various ways. “I’m sure at some point Sears did this with the catalog business.” At the same time, he said, “it’s become more noticeable this year.”
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This is likely because big box stores, like Walmart and Target, have gone to great lengths to better use their physical footprints. Both have increased their in-store capabilities — offering services like buy online pickup in store, curbside delivery and more — and their existing stores have been an integral part of that.
As online players like Amazon continue to put pressure on traditional brands by offering cheaper and faster fulfillment options, retailers have been scrambling to implement options that are both comparable and sustainable. Instead of building completely new facilities, most brands are turning parts of their already-occupied spaces dark.
According to Gartner analyst Tom Enright, the traditional physical retailer calculus was about sales per square foot. “Over time, as the number of walk-in shoppers has declined, basket size has declined as well,” he said. Consumer shopping patterns shifted; people weren’t necessarily buying less stuff, they changed where and how they bought their items.
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Dark spaces are now being used as a way to re-balance the scales. Instead of focusing on maximizing sales on the floor, retailers are ensuring they have the ability to quickly make sales on any channel the customer might be. “It’s almost the same question that retailers asked themselves when they first opened the store 20 years ago,” he said. But instead of asking about sales on the sales floor, “the question is around the sales on the non-sales floor.”
On the grocery side, a more drastic change is afoot. To keep up with demand for grocery delivery, some grocers are building entire ‘dark stores,’ which are newly designated areas or buildings for staff to stock orders that will then be shipped out. Dark stores, said Enright, are “exclusively used by grocery stores.”
A big shift
For stores, this means reconfiguring the space to handle more fulfillment options, as well as increase storage as more customers shop for items online. At the same time, it also means a shift in labor expectations. Enright said that, for the most part, retailers aren’t hiring different types of labor, but they are trying to make existing workforces more efficient.
“They’re doing more varied tasks,” he says. Similarly, stores are increasingly keeping track of down times and using those lulls for staff to do work off the sales floor. The growth of dark spaces, said Enright, has led to increased demand for management workforce systems.
On a broader scale, this focus on building more in-house fulfillment infrastructure is leading to retailers re-thinking their geographic strategies. “Retailers are looking at the stores much more in terms of geographical clusters,” said Enright. The question is no longer simply ‘should we open a store here?’ Instead, the companies have to think about whether they need locations to ease logistic issues — making quicker delivery more feasible. Similarly, as companies look to opening up smaller stores, they are being stocked thanks to dark spaces from bigger locations further out. The focus now is “whether the clusters can support everything the consumer wants,” he said.
When building out dark spaces, retailers have to create more efficient workflows. For example, in a grocery story that also delivers, it’s better to have the items picked after delivery and not after they’ve been put on the store floors themselves. Many companies are putting new technology in place to better handle these kinds of issues.
“The retailers are going to look to use automation technologies,” said Gildenberg. This would either make picking out stock to be delivered more seamless, or better stocking capabilities. Robotics, added Enright, are being increasingly used “to find products more quickly.”
Autonomous technology aside, other programs are trying to be adopted by retailers to make humans more efficient. “You’re going to hear a lot of conversations around trying to optimize the workflow and algorithms,” said Gildenberg. That is, in-store teams will be given better assistance to fulfill orders more quickly. The brands need to “make sure the pickers run the most efficient routes possible,” he said.
Another part of the dark space phenomenon is the growth of mini-facilities adjacent to stores. They are a step above in-store dark spaces and a step below full-fledged dark stores that require new real estate. These, said Enright, are “basically automated mini-warehouses stuck on the side of stores.” Instead of using sales space — or opening up a standalone facility elsewhere — they hold inventory to make home delivery easier. These spaces, he said, “alleviate the pressure,” as well as provide a cheaper option that building out a delivery-only store. For the most part this micro-fulfillment is mostly relegated to grocery — brands that are upping their online delivery services but don’t have the bandwidth to build out new facilities to hold stock — but it’s likely to increase to other big stores soon.
For retailers building out dark spaces, the hope is to figure out the most profitable way to acquire and keep customers. While building out quick home delivery is certainly expensive, other programs — like curbside and buy online pickup in store — provide ways for the companies to better service their customers. But to make these features work, they need to reorganize the assets they already have.
For many brands, these programs have been tested in isolated trials. But now, with the bigger players further expanding their capabilities, dark store features are only going to increase. Physical real estate will increasingly be redesigned to better streamline the programs. Said Gildenberg, “expect to see over the next two or three years things that were experiments become more scaled.”