Thirty years ago, to buy just about any item would require a trip down to the store or mall. Once there, a brick and mortar retailer would have a selection of competing brands on the same shelves and your purchase would be a straightforward trip down the age-old purchase funnel. Flash forward to today and some of the world’s biggest companies, like Uber and Airbnb, don’t even own a car or a property.
Rather they provide an innovative API that utilizes the collective assets to deliver a service to the masses. ’Technology’ companies such as these, have changed the way people experience brands. New Yorker Lee Hnetinka has just launched what he hopes to be the largest fulfillment company that doesn’t own a warehouse. Darkstore, a new San Francisco-based technology startup, is the brainchild of Hnetinka and Wilson Lee and is built on the premise that same-day delivery for an item purchased online should be the norm, whether it’s a T-shirt, or a mattress.
Previously, a delivery lag was an expected downfall of purchases made online, however the convenience of shopping from your office chair has always outweighed the wait time.
Hnetinka cut his teeth with New York-based one-hour delivery wizard WunWun and while doing so noted the need for an outsourced fulfillment company for digitally native brands. After using existing stores as a type of warehouse, Hnetinka realized there was a downfall in this model. When e-commerce retailers were approaching them with the hope of offering their customers same-day delivery, the idea of Darkstore was born.
The advent of digitally native vertical brands (DNVBs) has changed the way we purchase products, and also the way we receive them. Each day there are more companies offering a single, superior product for a more competitive price and without the upkeep of a brick and mortar store. Companies such as online mattress seller Tuft & Needle, have proven to thrive in the e-commerce economy doing exactly this and now they will be doing it even better, with the help of Darkstore.
“Instead of a DNVB starting their own fulfillment centers and then having to become experts in fulfillment, we are enabling them to get access to a same-day delivery fulfillment center at the click of a button and at an historically impossible price,” said Lee Hnetinka in an interview with PSFK.
“All they have to do is send their inventory to the Darkstore, connect with our API and then all orders made before 4pm will receive same-day delivery via our delivery partnerAxelHire in San Francisco.”
Beginning in San Francisco with online mattress company Tuft & Needle, what would previously take between three and five business days to arrive on your doorstep can now occur the same day if ordering to SF from the Tuft & Needle Sleep Shop before 4:00pm. What is even more interesting is that Darkstore will be fulfilling these orders without their own brick and mortar warehouse and they will only be charging 3 percent to the retailer with a ceiling of $20 per item and a floor of $2.
The concept of a ‘dark store’ isn’t a totally new idea, some of the world’s largest supermarket chains such as Woolworth’s in Australia and Sainsbury’s in London have used dark stores to fulfill online grocery orders for some years now. Where Hnetinka and Lee’s business model differs is they will be utilizing the empty space of other businesses to fulfill these orders. Storage companies, warehouses, larger retailers are all prime examples of Darkstore ‘partners’ who will have the opportunity to turn a more attractive profit for their under utilized space.
In South-East Asia, street vendors have been doing similar things from their bodegas. Storing the goods of online companies and then making speedy deliveries on their scooters when an order comes through.
The genius lies in partnerships like these that the Darkstore founders have formed. After weighing the risk of establishing their own warehouses, the idea was passed to them by former Expedia.com President Gary Fritz that signing a lease was never meant to be part of their business plan.
Instead, for their first Darkstore they have partnered with StorageSF, a storage facility in San Francisco, to offer them $7.70 per square foot for what would usually only fetch below $2.00. This has been achieved through a 70/30 profit share. For instance, a Tuft & Needle mattress retails for around $750, this means Darkstore will take $20 and split 70/30 with their San Francisco storage partner.
“That’s our business model. We partner with dark stores that have excess capacity and we share the revenue 70/30 with them. We don’t take on any real estate leases, and we don’t operate the dark stores ourselves. The storage facility accepts the incoming freight and they process all of the orders all using the Darkstore app.”
This also means that Darkstore doesn’t need to sign a lease or hire any staff. They just show Darkstore operators how to use their iPhone app, one that is incredibly simple and intuitive to use. An order arrives, an employee of the storage facility simply scans the SKU and enters the number of items. The retailer can then log in and check their inventory in any given location. As items are ordered, the Darkstore API will update to reflect this.
“On average, warehousing and fulfillment are 3 percent of sales. So, for a brand 3-5 percent of sales is what you pay for warehousing and fulfillment. There are 4 billion e-commerce orders done annually in the United States, 2 billion Amazon and 2 billion non-Amazon and we think we can get 15 percent of that market. So, that’s 270 million in orders. Our average revenue order, we believe is going to be $9. That’s $2.4 billion and that’s our 5-year projection.”
Hnetinka compares Darkstore to internet-heavyweight Amazon Web Services who effectively revolutionized the way online businesses could acquire server space allowing them to launch with much smaller budgets.
“We look at Darkstore very much like Amazon Web Services, but for real space,” explained Hnetinka in an interview with PSFK. “Before AWS, you had to get your own server, set it up and it was just that one server for one company. With Amazon Web Services, you have one server and many companies share this one server, and in doing that you have much larger cost savings and efficiencies, enabling startups to start at a way lower cost. We view the same cost savings with Darkstore, brands are now able to have a same-day delivery fulfillment center without the high cost.”
Which ever way you look at it, the concept has enormous potential to change the way consumers experience their favourite online brands, to be on near-parity with their brick and mortar counterparts.