Q&A: Darkstore CEO and founder Lee Hnetinka

Few things drive marketers and retailers crazier than delivery. Thanks to a generation of consumers raised on instant gratification, same-day delivery has become the new cost of entry, and companies without the technological wherewithal and storage capabilities to provide same-day delivery options to their customers at reasonable prices are at a disadvantage. That explains the rationale behind Darkstore.

Darkstore’s nationwide platform of urban fulfillment centers lets ecommerce brands big and small offer same-day delivery. Companies place Darkstore’s code at the top of their websites, allowing customers to find which products are available for same-day delivery.

Darkstore CEO and founder Lee Hnetinka previously founded one-hour delivery app WunWun.

The name “Darkstore” sounds a bit ominous. Are you ominous?

We are quite the opposite of ominous. If you search the term “dark store,” you’ll get a dictionary definition that describes a large retail facility that resembles a store but is not open to the public. It’s really a fulfillment center used to fulfill online orders. Sainsbury, the department store giant in the United Kingdom, was among the first to pioneer this concept. Rather than fulfill orders out of a high-priced bricks-and-mortar store, they do it out of the “dark store” to bring down costs.

What is Darkstore’s mission?

We have two purposes. We want to take the power that has historically sat with Amazon and Walmart and turn the tables around and give it back to the brands so that they can sell directly to the consumer, but still have the same-day delivery experience.

The second part of our mission is to bring revenue back into cities. Ecommerce has taken revenue out of cities because people stopped going to bricks-and-mortar stores. But our locations are urban, so we are driving money back into cities. We are a network of existing warehouses, so we are driving revenue to existing storage capacity.

How did you go from concept to reality?

One of our board members, Gary Fritz, is also chief growth officer at Trip Advisor. We were talking about how we could put urban fulfillment centers into cities. Gary was in Taiwan at the time. In Taiwan, ecommerce companies store inventory in corner stores and when orders come in, they hop on their scooters and deliver them. We want to democratize this concept and bring it to the United States. We want to follow this model that uses urban real estate and allows companies to put inventory there and have it delivered within minutes.

How do you find warehouse space?

We built our network on top of existing urban warehouses that have existing capacity. We are not partnering with retailers who are going out of business and looking to become fulfillment space. We are talking about big warehouses that exist in urban areas from Manhattan to San Francisco. We have 40 fulfillment centers across the United States. They all are local with excess capacity. They have extra space because the nature of technology and goods have changed.

Nike is a high-profile brand that’s been open about working with Darkstore. Can you explain the relationship?

Nike’s Air Jordan brand, Snapchat and Shopify all partnered with Darkstore to drop the Air Jordan III Tinker on Snapchat in the Los Angeles market on February 18. We sold out within 23 minutes and delivered within three hours.

Why is this such a big deal?

It was the first-ever sneaker to be sold on Snapchat. It was the first-ever Nike sneaker to be fully delivered the same day it was put on sale.

How many pairs did Darkstore deliver?

I can’t tell you. But I can tell you they sold for $200 each. We are a fulfillment company. We are the only company that built a platform of fulfillment companies for same-day delivery.

What categories do Darkstore’s same-day deliveries fulfill?

We focus on the home category, footwear, consumer electronics and beauty. Those categories attract the brands that most influence pop culture and influence people to want same-day delivery.

Isn’t that all stuff customers can easily get at the mall?

These are the things that you would have historically gone to a bricks-and-mortar store to get. But now you can get them in three hours. No other company can fulfill these categories like Darkstore.

Have you ever worked with Amazon?

Amazon is not a client. We don’t work with them. Amazon is a great company that has set the bar for customer expectations. But keep in mind, the first part of our mission is to take the power that has sat with large retailers and give it back to the brands to sell directly to the consumers. With Amazon, you have to shop on amazon.com. With Darkstore, you can shop on brand sites and get same-day delivery.

What’s an area of delivery you haven’t tapped into yet where you hope to excel?

We haven’t delivered products via things like robots or drones. This is of immense interest to me.

Do you outsource delivery?

Yes. We partner with companies like Deliv, TForce Final Mile and Uber Rush.

What does Darkstore’s service cost and how do you charge?

We charge for fulfillment, storage and delivery. We don’t charge on a percentage basis but on a per order or per
pallet basis.

Do you use artificial intelligence?

We use lightweight AI to make Darkstore more efficient. When you have a network of 40 warehouses, you need AI to assist with inventory and forecasting.

How big can Darkstore get?

Our mission is to have a same-day delivery option on every single website. Retail is a $25 trillion market globally. Amazon does $200 billion in gross merchandise volume. We don’t see why we can’t get similar scale and size.

Does Darkstore warehouse an enormous amount of stuff?

We don’t store ‘extra’ stuff. We store the product a brand plans to sell, and it usually moves pretty quickly. We only hold two to four weeks’ worth of inventory for a brand.

Who is Darkstore’s closest competitor?

We don’t really have someone who does what Darkstore does.

Does Darkstore present a challenge to big-box retailers?

The least profitable way to do fulfillment is bricks-and-mortar stores. As commerce has shifted to ecommerce, the need for same-day delivery has increased. Brands need to figure out how to fulfill those needs. We don’t discriminate. We work with any brand that believes what we believe: You shouldn’t be doing fulfillment out of a bricks-and-mortar store.

It sounds like you’re trying to upend retail.

We are changing the way the largest companies work. That’s not something you necessarily think about when you start a company. But now, when you sit in our position, we get to see how we are changing companies that are hundreds of years old. It’s pretty amazing.

Bruce Horovitz, a freelance writer, is a former USA Today marketing reporter and Los Angeles Times marketing columnist.