App-driven startup Darkstore, which matches ecommerce shippers with urban fulfillment centers that have excess capacity to facilitate same-day delivery, will use a new cash infusion to expand beyond the three markets it currently serves.
Lee Hnetinka, Darkstore’s CEO and co-founder, compared what his company does to Airbnb, the popular app that turns owners of residential properties into proprietors of guest accommodations. The company officially launched in late March, and recently closed a $1.4 million seed round from Pivot North.
“All the leading ecommerce brands without a [fulfillment center] in a city, there’s no way for them to offer same-day delivery, and that’s the problem we are solving,” Hnetinka said.
The new funds will be used for aggressive expansion; Hnetinka projects the company will deliver $110 million worth of product in the next 18 months. He said companies ranging from ecommerce startups to Fortune 50 brands have expressed interest in his services. Darkstore currently operates in San Francisco, New York and Phoenix and will soon expand to Chicago, Los Angeles and Seattle.
“Our first location was in Phoenix because our client Tuft & Needle is headquartered there,” he said, referring to the online mattress seller. “There aren’t many tech-enabled delivery companies in Phoenix, so we found Coyote Courier. They’re good at delivery but don’t have the technology so we supplied that. We use their 10,000 square foot DC that used to be used for forward stocking inventory like Macy’s receipt printer parts. Coyote had excess capacity so we’re literally monetizing dust for them.”
Other early Darkstore clients include headphone maker Master & Dynamic, cellphone case seller Peel, wifi device company Luma, nutritional supplement seller Nootroo and Canadian apparel company Frank & Oak.
Hnetinka said Darkstore is taking a page out of Amazon’s Prime Now same-day service, which has 40+ ecommerce fulfillment center locations close to demand in city centers. Delivery partners include Deliv, UberRUSH, Coyote, AxleHire and Dynamex. Retailers use Darkstore’s platform as a logistics engine to route products from the fulfillment location with the lowest delivery rates.
“All they have to do is plug into our API to get access to every last-mile delivery provider in our network, so they don’t have to integrate into each one,” he said. “The alternative is for them to lease a DC, hire employees and do the fulfillment themselves. It’s a turnkey solution. We charge them a 3% fulfillment fee based on the retail price of the item.”
When asked about demand for same-day delivery, Hnetinka said it was a “fallacy” that people don’t need or want it today.
“You may not need toothpaste or paper towels in two hours, but Amazon can get it to you in that time,” he said. “If your company isn’t offering two-hour delivery, guess where the consumer is going to go? It applies to all brands that don’t sell on Amazon and use FBA. Everyone’s expectations have been set by them, and two-hour delivery is the bar now. If you’re not on par with that, they’ll go where they can get it.”