_Property Bites Episode 14: Rise of Dark Stores
Speakers:
Hector Tan | Head, Marketing and Communications | hector.tan@sg.knightfrank.com | +65 6228 7337
Ethan Hsu | Head, Retail | ethan.hsu@sg.knightfrank.com | +65 6228 6832
Edited Transcript:
Q: Dark Stores are said to be the future of the post-pandemic retail, could you elaborate more on the concept of dark stores?
The concept of dark stores is an emerging one where traditional retail outlets are being converted to warehouse-like facilities to provide a click-and-collect service or fulfilment service for online orders only.
It is a trend that had picked up rapidly after the Covid-19 pandemic where stores were shut and unable to open due to the global lockdowns. Therefore, many retailers had to reconfigure their brick-and-mortar shops to dark stores in order to continue operating the business by switching to an online order fulfilment strategy. Some operators even chose to permanently close their retail stores and open up dark stores in an industrial facility that is purpose-built for storage, logistics and fulfilment services.
In general, dark stores offer businesses the ability to offer more of their products online, and using their spaces to store a large amount of inventory, fulfil orders, and provide options such as fast delivery and same-day pickup.
Q: We have seen darks stores emerging in the grocery scene especially, why the popularity grocery amongst others?
Grocery stores, retail goods essential for everyday living typically take up larger floor plates due to the large amount of inventory required and large variety of products they carry. Therefore, the dark store strategy was a natural response to the challenge of safe distancing measures and eliminated the problem of crowded aisles with customers competing for access to the products displayed.
With a dark store model, grocery stores can also keep shelves more efficiently stocked, reduce customer contact and optimise the space for inventory storage, picking, packing and delivery. Coupled with automation such as robotics technology, grocery stores can enjoy greater efficiency, round-the-clock operations, higher picking accuracy and faster deliveries, which would in turn encourage higher sales.
Q: On a previous episode, we spoke on the business model of department stores, would dark stores then be its substitute?
I think, to a certain extent, they would be. If they are able to optimise their dark store operations and fulfilment strategies to pass on some cost-savings to the customer. The key factor is the type of products that department stores carry, whether they are considered essential and readily available. If there are no compelling reasons for customers to purchase the products carried by the department store, because most of these could be consignment products of other manufacturers, then converting to a dark store concept can only work if the Department Store can compete efficiently on the basis of price, speed and availability.
Otherwise, customers will be able to purchase the same products from the various eCommerce platforms that have already optimised their online operations and strategies as their core competencies. So the difference is that Grocery Stores are an essential service where we need to buy these necessities on a very regular basis, like your meats, vegetables, milk and other consumables. The frequent nature of these purchases make the grocery store model unique in its own way.
Q: With the growing demand for ecommerce, there is a significant amount of regulatory assistance coming in to engage the retail industry to change the traditional business model. How do you see the retail landscape evolving towards dark stores? Will we see a permanent shift to dark stores in the years to come?
I think dark stores will become more common in the future as more people switch to online shopping in a post-pandemic world. It will be a useful strategy for retailers to stay afloat in a challenging market environment because it is inherently more efficient especially with the possibility of round-the-clock operations for such a model. Retailers do not need to upkeep expensive shopfronts as dark stores do not need to be in prime locations with high footfall traffic. Technology will also help retailers to better manage its order and distribution systems and resources can be redeployed to other areas where automation may not be feasible or practical. In addition, dark stores can also bring new opportunities for retailers to sell new products that can’t be offered in a retail store because of space constraints.
With that said, I do think that dark stores will gravitate towards more suburban and industrial locations and not within the prime downtown shopping belts and retail malls where shoppers would still want to be able to walk into a retail shop for an in-store experience. Major retail landlords may also limit the number of dark stores within the same complex since rentals are lower and they do not encourage footfall traffic. In the longer term, we may see a hybrid of retail stores that comprise a blend of dark stores and retail components that can co-exist to create a whole new experience for a new breed of shoppers.