Last May, Lee Hnetinka shut down his on-demand delivery service WunWun, which was a direct a competitor to Postmates, and then sold the company’s assets to Alfred, a TechCrunch Disrupt SF 2014 Battlefield alum. Fast forward to today and Hnetinka has teamed up with JustVacay founder Wilson Lee to launch Darkstore, a delivery fulfillment platform for e-commerce brands that is already powering same-day delivery for mattress startup Tuft & Needle.
Starting today, anyone who wants to buy a Tuft & Needle mattress upon seeing it in the company’s San Francisco showroom can get one delivered that same day, as long as they place the order before 4 p.m. Previously, it would take one to three days for delivery.
Darkstore’s target customers are direct-to-consumer e-commerce brands that don’t have local, brick-and-mortar stores but are looking to ship their products quickly. Darkstore works by exploiting excess capacity in storage facilities, malls and bodegas and enables them to be fulfillment centers with just a smartphone, Hnetinka told me.
“Uber is the largest transportation company that doesn’t own a car Airbnb is the largest hospitality business that doesn’t own a hotel,” Hnetinka said. “We’re not going to take on real estate leases and we’re not going to run these warehouses ourselves, so we want to be the largest fulfillment company that doesn’t own a fulfillment center.”
Darkstore doesn’t charge brands anything to store inventory, but charges 3% per item that leaves Darkstore, with a minimum of $2 and a maximum of $20. With Tuft & Needle, which sells mattresses for about $750, Darkstore charges them $20 for every mattress that goes out.
For its first fulfillment center, Darkstore partnered with Storage SF, located in San Francisco’s Dogpatch neighborhood. SF Storage typically charges $1.79 a square foot, but Darkstore figured out that it could get the storage company $7.70 per square foot. That’s how they landed on a 70/30 revenue share, with 70% of the 3% Darkstore charges brands going to SF Storage.
As long as Darkstore is picking the right brands, this model could work out pretty well for them. If Darkstore picks brands that don’t already fulfill a certain number of orders per week, Darkstore could end up in a tough spot where it’s storing all this inventory for free and not making any money because no one is buying anything from the brands. That said, Hnetinka says that before agreeing to store inventory for a brand, it confirms what the brand’s current order volume is in a given city so that Darkstore can gauge how much product they’ll move.
For deliveries, Darkstore partners with Berkeley, Calif.-based AxleHire, which charges $5 per delivery for small items and $10 per delivery for something like a mattress. Each brand is responsible for paying the delivery fee.
At the end of the day, Darkstore is basically a platform that facilitates same-day delivery for e-commerce brands, and allows them to track their inventory, orders and deliveries. In order to get more brands on board, Darkstore is actively building plugins for e-commerce platforms like Magento, Shopify and BitCommerce.
The idea for Darkstore came from a certain style of retail operations, called “dark stores,” in London and Taiwan. The dark store concept has not yet been brought to the U.S., Hnetinka said, and Darkstore wants to democratize it.
“In Taiwan, the way it operates is, under bodegas there’s extra space, so virtual retailers store their stuff there,” Hnetinka said. “That’s where we got the idea to exploit excess capacity and not build the dark stores themselves.”
With WunWun, the mission was to use stores as warehouses, which Hnetinka now says was a stop-gap. At the time, Hnetinka and the WunWun team were very tied to that mission. In hindsight, Hnetinka says he has realized that it’s important to look further ahead and know that the mission can change because of something like the market landscape changing, with several other players coming in and raising a boatload of cash, like Postmates, UberRUSH and Instacart.
“The other thing is, technology is moving so quickly that now, people are no longer buying stuff from stores offline,” Hnetinka said. “They’re buying stuff from different guys. We look and see, what’s not needed is to power offline stores online. What’s needed is dark stores.”
Right now, a lot of startups and companies are caught up with powering offline stores online, with the exception of Amazon, Hnetinka said. In looking at why Amazon is so successful, Hnetinka says it’s because Amazon gets you what you want, when you want it.
“There’s no other dark store-like solution that exists,” Hnetinka said. “So, you either sell through Amazon or you don’t have fast delivery if you’re a direct to consumer e-commerce company.”
But, I wondered why e-commerce, direct-to-consumer brands wouldn’t just use Amazon. Well, for one, brands are at risk of losing brand equity because Amazon doesn’t give much screen real estate to brands sold on its platform. Another reason, Hnetinka says, is because brands don’t want Amazon to own and have access to all of their inventory and sales data.
Although Tuft & Needle sells its mattresses on Amazon, Darkstore is the only solution it can offer customers who walk into their show room and want to buy a mattress right away.
“Our customers wanted faster delivery, and we’re excited to be working with Darkstore in order to provide them with the best experience,” Tuft & Needle co-founder John Thomas Marino said via email. “Our box is really convenient, but it’s still a size that most last mile delivery companies can’t deliver economically. We didn’t think it would be beneficial to become experts in fulfillment services, and we were happy to partner with people who are, in order to offer same-day delivery.”
To date, Darkstore has raised $150,000 from Gary Fritz, the former president of Expedia.com. The launch of Darkstore comes at a time when the on-demand market is hotter than it’s ever been before. Postmates recently launched a partnership with Shopify to offer same-day deliveries of items for local shoppers and Amazon recently made an effort to highlight its one and two-hour delivery service Prime Now with its own dedicated website.
“We think we can change the course of retail forever,” Hnetinka said. “And, in doing that, change the products that people have access to.”