Lee Hnetinka is taking a different approach in providing same-day delivery services to online brands. Recently, Hnetinka founded Darkstore, a tech startup that takes delivery services to a new level.
Businesses looking to establish relationships with customers find they cannot overlook delivery services. Customers want to get products delivered fast, but that is a huge challenge for online brands that do not have the resource to build their own delivery systems. It is a big investment to set up delivery services. Brands would need to purchase vehicles, have physical storage spaces, and employ staff.
But Hnetinka sees things in a different way. He say brands don’t need to own physical storage spaces or have vans for transporting products to deliver them to their customers.
Darkstores concept realizes that brands seeking delivery services, and which have a high volume of orders can benefit from same-day deliveries without owning the storage facilities and fleets of vehicles. What Darkstore is doing is to partner with the experts in the field of transportation and storage facilities where they come up with agreements on how to make the concept work.
Hnetinka started with Wun-Wun, a same-day delivery company based in New York. Wun-Wun used to deliver small products and this could happen within an hour of the purchase.
Hnetinka says, “The modern-day consumer is using online shopping and expedited delivery services at record levels,” further adding, “But many of these services still don’t operate with same-day delivery services. In addition, I believe many consumers have been let down by major shipping services over past holiday periods and will view Darkstore as a reliable and competitively cheap alternative.”
In addition to building relationships with customers, same-day delivery services can also help increase productivity. If a brand knows that its orders are moving fast, something that Darkstore is helping in, then the brand’s production team will work to ensure they speed up production to meet the demand. Unlike traditional businesses where the production team has to pile up stock, with the same-day deliveries, that stock is ever moving because customers can have the products delivered to them.
Also, the fast deliveries enhance trust with a brand. When consumers know that they will get their products in no time, they won’t hesitate to buy from that brand. It shows them how their time and the order they make matter to the brand. Customers feel honored and will spread the word to their friends and circles.
When delivery services are operated by 3rd parties, the brands do not spend their time and resources on such services. They will, therefore, put more focus on improving the quality of products they produce. It’s costly to invest in delivery services. Again, if the deliveries must be made over long distances, the cost can be too high for the brands. Increasing revenue while at the same time cutting costs are basic aims that brands need in their financial management.
Same-day delivery services also simplify inventory management. If brands have to pile up stock and watch it, it means that they need to have a suitable inventory management system. This not only requires time but also expertise and storage space.
But why do brands have to hold stock and bear the cost when they could have it sent to designated warehouses or storage facilities, which take care of the delivery process? Darkstore acts as a platform in which storage space providers and transportation companies can work together on behalf of the brand and ensure that customers get their orders delivered in time.
Through Darkstore’s app, brands can track their inventory, orders, as well as the deliveries. Darkstore is even working on building plugins for other e-commerce platforms such as Shopify, Magento, and BitCommerce.
When Hnetinka set up Wun-Wun, their mission was using stores as warehouses, but he realized that looking further ahead was important. They didn’t have to be tied to that mission and after selling off Wun-Wun, Hnetinka saw another opportunity to explore his concept of same-day deliveries. The market landscape is changing and with many players in the field such as Instacart, UberRush, and Postmates, Hnetinka had to think more deeply.
Hnetinka says, “The other thing is, technology is moving so quickly that now, people are no longer buying stuff from stores offline,” further point out, “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.”
If brands wanted to sell their products, a delivery system they would use is that of Amazon. Hnetinka said, “There’s no other dark store-like solution that exists. So, you either sell through Amazon or you don’t have fast delivery if you’re a direct-to-consumer e-commerce company.”
Amazon has been successful because it is able to get you what you need when you need it. But is it the right platform for the direct-to-consumer online businesses?
Hnetinka wondered why e-commerce businesses or direct-to-consumer companies may not want to use Amazon. After looking at the market keenly, he realized that there was a reason online brands, which had direct-to-consumer relationships might not be best placed to go the Amazon way.
Hnetinka thinks that when brands seek delivery services from Amazon, they could risk losing their brand equity, why? This is because, with Amazon, brands are fearing that it could own as well as have access to their inventories including the sales data, something that may put them in a difficult situation.
If brands had a better way of accessing delivery services without fearing loss of their brand equity, that could be an ideal solution to what Amazon now offers them. Take for example Tuft & Needle, which sells mattresses on Amazon. When Tuft & Needle uses Darkstore, it can manage their inventory. Darkstore has no interest in sales data for Tuft & Needle. It does not even think about the brand’s equity. It just wants to offer solutions for delivery services. Customers who walk into the Tuft & Needle showroom are able to purchase a mattress and have it delivered to their premises quickly.
The battleground for delivery services is at its peak, and new entries into the business are bringing in their concepts and approaches. Postmates has been a direct competitor to Wun-Wun, and it recently partnered with Shopify in an attempt to offer same-day delivery services of products bought by local shoppers. The same happened with Amazon where it recently introduced Prime Now deliveries, designed to be made one and two hours after purchase of the products.
The co-founder of Tuft & Needle, John Thomas Marino said, “Our customers wanted faster delivery, and we’re excited to be working with Darkstore in order to provide them with the best experience,” He further added, “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, to offer same-day delivery.”
Darkstore aims to provide brands with an alternative to Amazon and Wal-Mart. The greatest point is that Darkstore puts the marketing and sales data in the hands of producers, something that brands dealing with Amazon and Wal-Mart may not get.
The benefits coming from Darkstore deliveries not only stretch to the producers, but also to other players in the industry such as transport companies and storage facility providers. Darkstore itself doesn’t own physical space or warehouses. It doesn’t even lease them. It just brings in an app that would work for the storage facility providers, the transport companies and the brands selling their products.
The platform allows brands to send their inventories to warehouses and storage spaces owned by 3rd parties. And, the store owners are finding that their underutilized spaces are now being more profitable and earning them a lot of money than before. The commission structure that Darkstore set up with the storage facilities owners ensures they get a higher per-square-foot commission than they could previously.
The growth of Darkstore is worrying for online retail giants like Wal-Mart and Amazon. Darkstore is now providing extremely low-cost solutions for brands that have high volume product movement. Darkstore is not the only company gaining benefits realized from its model of delivery services – other players, which have been sidelined in this business are finding it more profitable.
Darkstore tries to work with brands so their stocks won’t remain idle in warehouses. So, they will examine order volumes for the brands they work with to ensure they won’t get products that sit in warehouses for long, because that could mean they pay storage for products that aren’t selling.
Hnetinka says, “We want to ensure we match up with companies whose stock will not be idle in our warehouses. Our relationship becomes mutually beneficial as we are able to handle large order volumes at short notice, and our storage partners receive considerably more revenue on Darkstore designated storage space than they would via traditional storage revenue channels.”
With a charge of 3 percent being levied on every item leaving the storage facilities, Darkstore sets a minimum charge and maximum charge of $2 and $20, respectively. What Darkstore does is eliminate the storage costs by engaging only with high volume orders. That means the products and items in the warehouses can sell fast and won’t take up unnecessary space by not moving. That way, the commission charged warrants the time of storage the products must remain in the warehouses.
Wun-Wun, which was the previous delivery services Hnetinka founded, used to provide its services through a unique SMS element. Wun-Wun used the SMS platform to give updates to customers needing their orders to be delivered while being able to allow alternations for the orders to be made. Wun-Wun was purchased by Alfred, which is also a tech company operating the in the delivery space.
Recently Darkstore closed $1.4 million in what it termed as seed financing from PivotNorth. This new funding is intended to open Darkstore’s presence in new markets as well as expand the team. Currently, Darkstore has set foot in San Francisco, Phoenix, and New York. It now plans to enter other markets including Seattle, Chicago, and Los Angeles.
As the founder of PivotNorth, Tim Connors will be taking a spot as one of the Darkstore’s Board of Directors.
Lee Hnetinka has said, “PivotNorth brings tremendous value to Darkstore,” further pointing out, “Tim has an impressive track record of investing early in some of the most successful technology companies. He has a deep understanding of the market and shares our vision for democratizing operations and logistics so any retailer can offer the same affordable and convenient delivery options as eCommerce giants and big-box stores. We’re honored to have him on our board.”