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September 16, 2020

Can Dark Stores Save the Choking Supply Chain?

Written by: SJ Petteruti

Ecommerce is booming; no one would argue against that. But while some investors may be popping corks over earning reports from retail giants, those in the shipping industry have warned for months that the American supply chain isn't equipped to handle the current delivery load.

There are ships off the U.S. coast and trailers in shipyards across the country that can’t unload their products.

All the while, FedEx recently announced it would join UPS and the USPS in raising fees during the holiday shopping season. The USPS has threatened to cut staff and hours after the election. Amazon needs 12 times more warehouse and distribution facilities.

Many brands aren’t currently feeling the pain because they’re working at Holiday-level capacity — but what happens when the holiday shopping season actually starts?

Brands Are Turning to D2C —
But It’s Not Without Challenges

As more and more brick-and-mortar retailers go dark, it seems that every brand manufacturer is running to direct-to-consumer (D2C) channels. But this is no easy transition.

In many cases, companies must dramatically overhaul almost every aspect of their business operation after running it the same way for years (and sometimes decades). From branding and data management and people operations to supply chain distribution — the older and bigger the brand, the harder it is to make this shift.

But ask any brand that's been using a D2C model for a while: The biggest problem isn't handling data or organizing people; the real Wild West is fulfillment.

Full Speed Into the D2C Future

Increased shipping costs put additional pressure on brands looking to invest in D2C channels, as they then face a tough choice: Do they continue to invest in D2C services amidst these increased costs? And if so, do they eat these higher costs or pass them along to the customer?

The answer: Move forward at full speed with your D2C plans and eat the cost in the short term. This strategy will allow you to test and learn while you determine where a D2C strategy could work within your organization.

The current supply chain crunch is a gust going against the tidal wave that is ecommerce. But D2C is the future.

While it may not be the most efficient route to market for you today — or the largest source of revenue — your consumers likely aren’t going to go away any time soon.

The Amazon Fulfillment Option 

There is one major shipping carrier not raising fees this year. You guessed it: Amazon. (You may be surprised to learn that Amazon is the third-largest shipping company in America. Welcome to the world of ecommerce.)

Amazon’s Fulfilled by Amazon (FBA) service is an option many brands choose for the ecommerce fulfillment strategy. FBA will even deliver a product that wasn’t purchased on Amazon. But there are significant problems with being so beholden to one company for both ecommerce transactions and supply chain fulfillment.

Enter: The Dark Store

A “dark store” is another cost-efficient way to get products to customers without relying on Amazon. A dark store is when a brand uses a third-party logistics (3PL) provider to connect to a fulfillment center where it can then manage the delivery of its products to consumers.

This is a popular method of distribution for grocery stores, but soon to be a way of business for many more industries.

Ecommerce is in desperate need of fulfillment space, and commercial leasing real estate investment trusts (REITs) are on their backs. The pairing is natural. The spaces that previously housed department stores and shopping malls are a perfect fit for dark stores. They are close to urban centers, have good access for trucks and delivery vehicles, and are enormous.

Companies are rushing to fill this void on both the delivery and storage sides. Simon Malls is in talks to acquire J. C. Penney, the nation’s largest retail space owner. Amazon is in talks with Simon Malls to use space for fulfillment centers. Shopify is investing in its eponymous Shopify Fulfillment Network (SFN), after acquiring the logistics robotics company 6 River.

Brands can get one step ahead by pairing with the right 3PL to efficiently manage their deliveries in a forward-thinking way.

Smart Data Management Is Essential

There are efficiencies to be gained by working with smaller shipping companies smartly, and doing this requires smart data management. Consulting firms, 3PLs, agencies, and commerce experience solution providers can help guide this strategy — and a combination of all of them is probably necessary.

Working with the right fulfillment partners can help you drive down shipping costs, making D2C a profitable opportunity for your long-term success.

The Digital Shelf Institute recently discussed some of the strategies for making fulfillment and logistics a competitive advantage during a recent webinar with guests John LeBaron, chief revenue officer at Pattern, and Zech Hintz, president of Borderless Distribution.

CLICK HERE TO WATCH THE FULL SESSION