The following is a thought leadership post from Dan Spiegel, SVP & Managing Director — Coldwell Banker Commercial
Throughout the pandemic, retailers have had to overcome continuous hurdles: expanding digital capabilities, maintaining a workforce, battling inflation’s rising prices, keeping products stocked during supply chain disruptions and more.
The introduction of dark stores was one of the innovative solutions deployed by many retailers during the pandemic. In the last year, these fulfillment locations have helped bolster retail’s recovery, and propelled the growth of rapid delivery providers across the globe and in markets like New York City.
Retail Goes Dark
The term “dark stores” can be deceiving. While the storefronts may no longer be open to the public, the lights are on amidst a flurry of activity happening behind the scenes.
By definition, dark stores are brick-and-mortar shopping locations that have been converted into a center for fulfillment operations. Typically occupying around 5,000-30,000 square-feet, they’re also aptly characterized as “micro warehouses” or micro-fulfillment centers (MFCs).
According to Reef, dark stores are increasing in number because they solve four key challenges faced by traditional retail stores: inventory management, order accuracy, in-store experience and delivery speed.
And as traditional industrial space remains in scarce supply, utilizing under-performing retail stores for order fulfillment can help brands keep up with demand and serve the customer’s desire for fast, accurate e-commerce services.
The Quick Commerce Boom
Two-day, next-day, and even same-day shipping, no longer provide the same allure to many shoppers. In the last year or so, rapid delivery companies, who’s business model is based on getting customers their order in as little as 15 minutes, have exploded in cities like New York City.
Rapid delivery providers such as GoPuff, Getir and Buyk, recognize consumers’ need for speed. They also see dark stores as a way to meet those needs.
As reported by the New York Times, these “ultrafast grocers” operate out of hyper-localized dark store hubs that are within a mile and a half of customers. They carry their own products in these locations, typically up to 5,000 different items compared to 35,000 stocked by a full grocery store.
Are the 15 Minutes up for Rapid Delivery?
Although the rapid delivery concept has exploded onto the scene, some speculate it will burn out just as quickly as the providers face challenges from the communities where they operate as well as profitability margins.
In New York, some neighborhood stores argue these MFCs are not in accordance with local regulations: “from a zoning perspective, the facilities operate in a gray area between commercial and industrial land use,” per CNBC.
Venture capitalists poured $9.7 billion into rapid-delivery companies globally in 2021, per Bloomberg, but many are struggling to keep up in 2022. In March of this year, both Buyk and Fridge No More shuttered operations, the latter leaving 671 employees out of work.
While these newer players may falter, the concept of 15-minute delivery is likely here to stay. Publixrecently announced a new 15-minute delivery service in partnership with Instacart for customers in Miami.
The post-pandemic retail landscape is one of innovation and adaptation. Many of the shopping methods that accelerated over the last two years will continue to grow and evolve.