Unlocking the Last Mile: Exploring the Pros and Cons of Dark Stores and Micro Fulfilment Centres

Recent McKinsey research indicates a looming surge in logistics costs for e-commerce, potentially reaching 15-25% of revenues. This escalation is attributed to the rising last-mile delivery expenses. Specifically, picking-up costs constitute 5-7%, with last-mile delivery charges comprising up to one-third of the total expenses.

Dark stores and micro fulfilment centres (MFCs) are the secret weapons of e-commerce to keep these costs in check while meeting customers’ needs with smooth and fast deliveries. According to a Research and Markets survey, dark stores and micro-fulfilment centres are set to increase from approximately 250 in 2020 to 6,600 units by 2030, with the growth beginning in the USA, followed by Europe and the Asian market. On the other hand, Interact Analysis estimates a groth that will reach 7,300 MFCs by 2030.

Dark store and micro fulfilment centres are not the same thing

41% of worldwide consumers expect delivery within 24 hours, while 24% would like to receive their orders in less than two hours. Meeting these demands is the primary objective of dark stores and MFCs. Although they may appear quite similar, the two solutions are, in fact, complementary. If compared to a traditional Distribution Center (DC), an MFC is a warehouse that is smaller in size, but equipped with the latest technologies to automate order sorting and preparation, ranging from AS/RS systems to robots, and AI-based software. Now, the speed and complexity of order fulfilment operations are approaching the limits of human capacity, and these features are becoming essential to companies in order to manage daily operations in time.

Dark stores are often physical stores closed to the public. They usually maintain the organisation in lanes. They facilitate fast delivery through 100% order assortment and proximity to the end customer, and may or may not be equipped with automation technologies. Parcels are prepared in a matter of minutes and handed over to delivery drivers. In some cases, retail outlets – or parts of them – are being transformed from open-to-the-public stores into dark stores, a trend affecting many fashion retail like Macy’s, El Corte Inglés, H&M, and Zara.

The main advantages of dark stores and micro-fulfilment centres

Dark stores and MFCs within the supply chain bring some significant advantages:

• given the same technologies involved, a smaller storage area can reduce picking-up times and errors, ensuring ease of order preparation;
• improving the quality of delivery by ensuring fast deliveries, even within the same day or a few hours;
• lower costs and a reduced environmental impact, as goods travel a shorter distance;
• more accurate insights about sales data and customer preferences across different geographic locations;
• lower entry investments than the costs required to open a large automated distribution centre.

The challenges for those who choose this new distribution model

The burden related to last mile delivery problems is high throughout Europe, and according to Scandit it mainly focuses on costs (for 50% of respondents), inefficiencies (55%) and the need to remain competitive by offering new services (45%). Dark stores and micro-fulfilment centres can be a solution, but there are challenges to be addressed to their implementation. For example, the increase in city traffic, which concerns the public opinion.

On the other hand, problems related to the supply chain include limited storage capacity and few units per item availability in the store/warehouse. This leads to greater difficulties in optimising space. Finally, if the number of orders suddenly grows significantly, dark stores and MFCs are unable to meet the demand in a timely manner.

Winning the game of successful, efficient last mile delivery in line with customer expectations is not easy. However, dark stores and micro-fulfilment centres can positively improve the online customer experience and create interesting synergies between online and physical channels, while also supporting brand awareness.

Nevertheless, the key to success comes from the understanding of the customers’ needs. Cegid is constantly looking out for the latest innovations in the retail world and is well aware of the tools and technologies that can help its customers remain competitive and develop the stores of the future.