Can it cover its costs?

Luxe is expanding quickly, but how are its margins?

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Valet parking app Luxe, one of the newer on-demand entrants, is growing fast. On Tuesday it announced its most recent funding via a blog post, a $20 million round led by Venrock and Redpoint.

It’s finally launching its Android app, which it told TechCrunch it has had ready for two months. Luxe put off releasing it because it wasn’t sure it could meet the demand.

As an operational business, Luxe has a lot of moving parts. It allows people to order a valet to meet them anywhere they’re headed in the city. That valet picks up the car and parks it in a nearby lot that’s partnering with Luxe. The valets themselves, frequently traveling by scooter, have to be there before the person drops off the car in case it’s a busy intersection with nowhere to park. Furthermore, when the person requests their car to return home, they can do so anywhere in the city, not just where they dropped it off.

That’s an intricate system, far more so than just a car on demand, like Uber, or delivery on demand, like Postmates. Luxe doesn’t have it totally figured out yet, and when people drop a pin they’re sometimes told that no valets are available. It’s not surprising that Luxe chose to go slow before releasing its Android app.

This is what it looks like on Luxe if you request a valet when none are available in your area.
This is what it looks like on Luxe if you request a valet when none are available in your area.

Perhaps more importantly than funding or Android news, Luxe announced it will expand to three new markets — Chicago, Boston, and Seattle — by the end of April. That suggests that it’s starting to nail down its operational process. Despite that strong growth, the company is still lagging a bit behind its competitor Zirx, which was first to the on-demand parking scene. Zirx has received far less fanfare (no write-ups in the Wall Street Journal or New York Times, unlike Luxe), but with its head start it already expanded to Seattle and Washington D.C.

The big question for both of these companies is whether they’ll be able to make a profit. Both are venture-backed and charge a pittance of $15 to park a car for the entire day. That low price is a big part of the appeal for customers. But given that this fee includes the cost of a valet schlepping to and from wherever you happen to pull up, in addition to the parking spot itself, it’s hard to imagine that $15 covers the cost of the service.

SJ Sacchetti, a Luxe spokesperson, told me that they’re not losing money on every transaction. “Through scale and increased access to inventory, we’ve been able secure pricing below what a consumer is charged,” Sacchetti said. “Continued growth and new markets will continue to help us on both fronts.”

She did say that the pricing may vary in new markets, depending on the cost and availability of parking options for Luxe. I wonder if we’ll see the addition of surge pricing, as happened in the on-demand meal and delivery space with companies like Postmates, Sprig, and SpoonRocket.