How can digitalization impact location strategies?

In today’s increasingly digital world, location strategies are no longer solely about choosing prime real estate based on proximity advantages (Ratchford, Soysal, Zentner, & Gauri, 2022). This research examines how digitalization is reshaping location strategies, particularly within the food retail sector. The focus is on how these evolving strategies influence inventory management, a key operational decision in digital-driven environments. Woolworths, for instance, opened its first dark store in Cape Town’s central business district (CBD) in 2024 to support the rise in online orders (Illidge, 2024). The company believes these dark stores will enhance product availability for online customers by reducing reliance on physical stores, thus minimizing competition for inventory between in-store and online shoppers. Retailers in South Africa face a significant challenge in balancing the demands of online and physical channels when selecting store locations. Modern location strategies increasingly view stores not only as retail spaces but also as hubs for fulfilling online orders, accommodating services like curbside pickup and same-day delivery. Leaders in this approach include Hema, Alibaba’s grocery chain in China, and Amazon. While Hema stores resemble traditional grocery outlets, they also function as mini-distribution centers, offering rapid delivery to local areas, as well as experience and consumption centers (e.g., in-store dining) (Wang & Coe, 2021). Amazon, on the other hand, strategically locates distribution centers and stores by balancing economies of scale, operational needs, market reach, land costs, and lead times (Rodrigue, 2020). Rodrigue (2020) developed a framework outlining critical considerations for location strategies, focusing on distribution patterns, real estate footprint, logistical facilities, and vertical integration. This framework guides retailers in making strategic decisions about where to locate facilities by examining how these factors interact to optimize both physical and digital supply chains. In South Africa, online shopping continues to grow, now accounting for 6.15% of total retail revenue (World Wide Worx, 2024). Gauteng leads the country in online shopping activity, while provinces such as the Eastern Cape and Mpumalanga report lower levels, highlighting regional disparities in e-commerce adoption (Figure 2). Among metro areas, Pretoria ranks highest in online shopping activity, with Johannesburg showing notable growth. Interestingly, Cape Town saw a decline, suggesting shifting consumer behaviours at the city level. These trends push South African retailers to redefine their location strategies. How can they position stores to effectively manage inventory for both online and in-store shoppers?