Right about now, as college students across the country start to go back to school for the Spring semester, things are starting to pick up at Chegg’s 600,000 square foot warehouse in Shepherdsville, Kentucky. The warehouse sits right next to the main UPS shipping hub and across from a Zappos warehouse.
The textbook rental company sees its busiest times peak twice a year at the beginning of each college semester. Books from last semester come in around Christmas and new ones start going out by New Year’s. “To me,” says CEO Dan Rosensweig, “watching the ball drop is just inverting the rental tracker.” The books that come in need to be inspected, sometimes repaired, and shipped out again for the next batch of student textbook renters. The warehouse has the capability to ship nearly 17,000 books an hour. “On our biggest day hundreds of thousands of books are processed,” says Rosensweig.
To manage the operations, former Chegg board member Tom Dillon has officially joined the company as senior vice president of distribution. Dillon was the first chief operating officer of Netflix, and set up its hub-and-spoke DVD distribution centers. (Former Netflix CFO Barry McCarthy is also a board member).
Since demand for Chegg’s textbooks is highly seasonal and concentrated in those two times a year, Chegg must staff up both its warehouse and customer service with temporary employees. Chegg employs a couple hundred people full-time, but it quadruples its staff during peak times, with more than 500 workers in the warehouse alone. But Chegg is fanatical about customer service, and bulks up on customer service reps to answer students questions during rental season.
Despite competitors like BookRenter and eCampus nipping at its heels, Chegg remains the undisputed leader in the growing textbook rental market. The company plants a tree for each book it rents, and over the past three years it has planted over 4 million trees. “From peak to peak we are seeing excellent growth,” reports Rosensweig, “we don’t feel we have hit penetration or are even close yet.” And while it is still early, so far numbers are up this year again.
Rosensweig wouldn’t go into specific financials, but he did confirm that the company did better than it had been projecting for the year. Onstage at Disrupt last September, when I threw out our 2010 revenue estimate of $130 million, at the time he said it wasn’t far off the mark. Round that up to $150 million and that is probably pretty close is my best guess.
Chegg already rents to students in about 7,000 of the 8,000 college campuses nationwide, and its focus is to spread across campuses to more students and to rent more books to existing customers. It also acquired CourseRank and Cramster, which help students pick courses and study for them. The company has raised $219 million to date, most recently a $75 million round last Fall.
Shipping books is a capital-intensive business, and eventually it could be threatened by the rise of digital textbooks. In fact, Chegg co-founder Osman Rashid is bringing to market the Kno Tablet to offer digital textbooks to students.
Rosensweig thinks that in a few years digital textbooks could be a factor, and he’d like to offer them to students if there is demand for them. Already Chegg offers digital textbook supplements online. But for right now, he says electronic textbooks are “insignificant.” He points out some of the challenges. “Battery life is not better than a book;” publisher availability is not complete (all a student’s textbooks need to be available on one or what’s the point); and, “Right now, it is less expensive to rent a physical textbook than to get one digitally.” He expects all of these things to change, but not overnight. Until then, he’s got a huge warehouse to keep humming at full capacity.