What Were/Are The Venture Capitalists Thinking?
In the latest installment of “WHAT WERE/ARE THE VENTURE CAPITALISTS THINKING?”, we have ultra-fast “instant needs” delivery, which promises to deliver milk, munchies and diapers to your door within 30 minutes, 15 minutes, 10 minutes… even before you knew you needed them. (Just kidding on that last part, kinda). Seeking that critical first-to-market advantage, startups with names like GoPuff, Jokr, Gorillas, Buyk and Getir are blanketing NYC with so-called “dark stores” and planning expansions to Boston, D.C., Chicago and other U.S. cities in the coming months. On one hand, this seems to be capturing the imagination of the “15-minute-city” advocates. And it also reinforces what I’ve been saying about the increasing (not declining) appeal of urban brick-and-mortar amidst the rise of e-commerce, the cost of shipping and the dearth of warehouse space. The problem is that, like ghost kitchens, these dark “stores” are not actually open to customers. More to the point, most of them will likely revert to true darkness in relatively short order. I mean, who in their right mind thinks this model could ever turn a profit? With the famously low margins of grocery items? With no true economies-of-scale? With the insanely high costs of customer acquisition (amidst a deluge of competitors)? Amidst a severe labor shortage? And, in most cases, with no purchase minimums, no pricing markups and no delivery surcharges? Does anyone remember Kozmo.com? Let’s concede for the moment that the consumer actually needs or desires this level of convenience – if there’s no business model whereby at some point more money comes in than goes out, it’s all just a VC-fueled bubble, likely to pop once public markets start to enforce some discipline. And pop, it will – I am not even convinced that the ones left standing in this space will ever be able to turn a profit. In the meantime, we’ll be left with storefronts that are once again vacant, but with rent expectations having grown as a result, with properties having traded at a higher basis — which has second-order effects on how or whether they can be back-filled — and with otherwise more stable and sustainable legacy retailers having had to waste energies and resources on fending off such short-term irritants. While zoning refinements should be able to help in addressing the dark-store phenomenon, the larger problems caused by this high-risk/high-reward VC model — which works for its investors but not for so many other industry stakeholders — will remain.