Lee Hnetinka’s Darkstore Is the Future for Online Brands Delivery Services

Lee Hnetinka’s Darkstore is the Future for Online Brands Delivery Services

Online brands, just like brick and mortar counterparts, want to build relationships with their customers. Customers today are seeking expedited delivery services from brands they engage with, and the brick and mortar businesses are able to do that while online brands have limitations. But Lee Hnetinka sees that online brands can also explore the benefits that come with same-day delivery services. Through the Darkstore app, now online businesses can use warehouses and storage facilities owned by other companies and do delivery services to their customers.

Brick and mortar stores tend to focus on serving the local population and they can liaise with standalone delivery services to ensure customers have their products delivered to their doorsteps in a short period. This system works because the brick and mortar stores already have the space to store their products. When they partner with local delivery services, they can quickly deliver their products to clients who order them. But what about an online brand that does not have a local store, where can the brand sell its products?

Online brands are growing and reaching a wider clientele base, but there comes a problem with operating delivery services. These brands may not be able to own warehouses and stores in every other location. It is quite expensive to undertake this mission, and it may not be in their business plan. But Hnetinka, from an idea which was sold to him by Expedia.com President, Gary Fritz, has been able to come up with what may be seen as the future for delivery services for online brands.

Darkstore may be in its early days, but is has proven that it can provide a cost-effective solution in the last mile delivery services. In the holiday period, the tech startup saw a considerable increase in its operations. After the launch of Darkstore in May 2016, the holiday season in December was marked by a significant increase in brands using the platform.

Silicon Valley Entrepreneur Lee Hnetinka who just raised $1.4 Million says, “The increase of deliveries via Darkstore was entirely expected given the number of individuals who opt to purchase goods for delivery as the holiday season approaches,” further pointing out, “Fortunately, our platform was able to handle the excess capacity and we ensured that thousands of holiday shoppers received their goods at extremely short notice.”

Darkstore is engaging with partners like Tuft & Needle, SkiPods, and Peel. The increase in demand for delivery services in companies like Peel and SkiPods spurred the growth of Darkstore during the holiday period.

Hnetinka was previously running a company known as Wun-Wun, which offered one-hour delivery services in New York. Hnetinka sold the company to a TechCrunch Disrupt SF 2014 winner, Alfred, before teaming up with Wilson Lee, the founder of JustVacay, to launch Darkstore. Wun-Wun was directly competing with Postmates in delivery services.

Darkstore feels that digitally native vertical brands should enjoy the benefits associated with same-day delivery services. Brick and mortar stores may be already enjoying these benefits because they have the storage facilities or stores where they can put their products. But digital brands may not have those facilities. Investing in warehouses proves a costly undertaking and it may be beyond the financial ability of the online brands. Darkstore has the solution to these brands that want to build relationships with their customers.

Delivery services are a way of building trust with customers. When customers get products they purchase delivered in a short time period, they feel that they are honored, and their purchase is recognized by the brand. One feature with online brands is that they are competing with giant e-commerce businesses like Amazon or Wal-Mart, which have invested heavily in things like delivery services. Also, online brands which are selling their products through Amazon may not be getting the exposure they need and the kind of advertising they would want. Many online brands are locked out of the Amazon business model and those that are using Amazon, are risking losing their brand equity. Amazon has their sales data, which puts those brands in an awkward position.

Darkstore may seem the best option for brands that want to manage their sales data and protect it from other parties. Through the Darkstore app, online brands are accessing delivery services in locations where they do not have physical stores. These brands don’t need to invest in the costly warehouses. Darkstore themselves also do not need to invest in warehouses or lease them.

Storage companies tend to have storage spaces that are underutilized, and at times, they may not be getting the kind of revenue they should. Darkstore partners with these storage companies and gives them business. The storage companies handle the delivery process for the online brands. They are shown how to use the simple iPhone app and the products delivered to those warehouses or storage spaces are then sold to customers. Darkstore takes about 3 to 5 percent of the sales amount for every single item that is ordered. This tech startup also works with shipping and delivery service companies to ensure that orders are delivered fast. Hnetinka says, “All they have to do is send their inventory to the Darkstore, connect with our API and then all orders made before 4 p.m. will receive same-day delivery via our delivery partner AxelHire in San Francisco.”

1. In San Francisco, Darkstore has established a partnership with StorageSF and some of the brands which are using the Darkstore’s platforms, like Tuft & Needle, the renowned mattress seller. In the past, an order for Tuft & Needle would take close to five business days to get to the customer. However, today, it is delivered the same day if the order is made to StorageSF from the Tuft & Needle Sleep store before 4 p.m. The most interesting thing is that Darkstore is fulfilling the orders without having any physical brick and mortar warehouse. Better still, Darkstore will only charge about 3 percent to the retail brand, where a maximum amount of $20 and low of $2 are charged to that retail brand.

Darkstore is targeting direct-to-consumer brands that lack brick and mortar stores but want to ship their products fast. Hnetinka has seen the opportunity and wants to use the excess capacity that storage facilities have and make them become fulfillment centers by using a smartphone. In its partnership with StorageSF, located in the Dogpatch neighborhood in San Francisco, Darkstore has allowed the storage facility to earn handsomely from underutilized space. StorageSF charges about $1.79 for a square foot storage offer. Darkstore came up with the idea that saw the company being able to net $7.70 in every square foot by having a revenue share of 70/30 with the storage facility. If a customer orders a mattress from Tuft & Needle and it is delivered from the StorageSF warehouse, it would mean that out of the sale amount of the mattress, which is $750, Darkstore was going to charge $20. It would then split that with the storage facility on a 70/30 share.

But Darkstore does not want to engage with online brands that cannot meet a certain amount of order volumes. It wouldn’t make sense for Darkstore to have products in warehouses and those products aren’t moving. If Darkstore stores inventories that are not moving, it is going to lose and that is why it must evaluate the order volume to see that the inventory can move fast. And that is how best this model can work.

If you have a direct-to-consumer online business, you may find there is no access to fast deliveries of your products to customers. It just won’t work unless you are selling through Amazon. But weighing the risks of having to deal with Amazon, many brands don’t have the solution to fast deliveries. With Darkstore coming in at a time when online businesses need solutions for the delivery of their products, it is proving a rivalry to the giant e-commerce businesses like Amazon. Tuft & Needle itself sells mattresses on the Amazon platform, but with Darkstore, the system works better for this mattress seller. When a customer walks into Tuft & Needle showroom and they want to purchase a mattress that moment, Darkstore seems to be the most outstanding solution.

Gary Fritz, who shared his idea which led to the birth of Darkstore, recently helped Darkstore raise $150,000 which is intended to help in expanding the operations of this same-day delivery services company in other locations. The demand for same-day delivery services is high and the market is having a lot of competition. Postmates which was once competing with Wun-Wun, a company previously owned by Hnetinka and which offered in-the-hour delivery services to customers in New York, has now partnered with Shopify to provide same day deliveries. Looking at Amazon, through its dedicated website, it has come up with Prime Now to introduce a one and two-hour delivery service. These e-commerce platforms (Amazon and Shopify) may be offering solutions to retail brands that sell through them, however with Darkstore, the experience for online brands is going to be different and one of its kind.

The brands working out their deliveries through Darkstore will have control of their inventories and sales data, something that may be missing on other platforms. Darkstore does not have any vested interest in those online brands and they don’t want to own the sales data for those businesses. What they are providing is a platform to facilitate faster deliveries of products to customers.

PivotNorth founder Tim Connors will be part of the Darkstore’s Board of Directors. PivotNorth recently helped Darkstore raise an estimated $1.4 million in seed funding to help expand its operations. Talking about Darkstore, Connors says, “Darkstore is hitting the market at precisely the right time.” He further added, “While online retailers are excellent at inciting and taking orders, their logistics capability is often limited. Darkstore is enabling a transformational supply chain solution through very compelling warehouse management technology that addresses this challenge. It’s an exciting company and I’m thrilled to join the Board.”

The e-commerce business world is growing and customers are expecting that they get the best services from the online brands and not having to succumb to delivery limitations. Online brands also understand that customers want them to be flexible, otherwise they won’t buy their products. Now, with Darkstore, online brands do not have to lose business because they don’t have delivery services. With many large online companies like Wal-Mart and Amazon offering online shoppers one-hour deliveries as well as same-day delivery services, customers expect to get the same flexibility from other online brands. But since there is a big challenge for smaller online brands investing in delivery services when they should own their warehouses or fleets of vehicles, Darkstore takes away that bottleneck. Without even owning a single warehouse or a physical store in a specific location, Darkstore can partner with the local shipping companies and storage facilities to allow the online brands to have access to delivery services. Hnetinka is filling the logistical gap that many e-commerce brands have been experiencing when it comes to giving their customers faster delivery services.