Growing via eBay at Warp Drive speed
Rich Kirchen - Milwaukee Business Journal October 22, 2004 print edition

Internet instrumental in gonzo guitar sales at Warp Drive L.L.C.

Gleaming electric guitars hang three high and cover the length of the showroom wall at Cream City Music. It's eye candy for guitar lovers, but the guts of Joe Gallenberger's business hums in a back room that looks like a basement workshop gone gonzo.

In that room, several employees in the shipping department of Gallenberger's Internet business, Warpdrive Music, fill the 1,000 orders per month the company sells through eBay auctions for everything from complete guitars to guitar strings. Indeed, Internet sales, primarily via eBay, account for 88 percent of the $2 million annual revenue at Gallenberger's Warp Drive L.L.C.

From a modest storefront in Milwaukee's Bay View neighborhood, Gallenberger and his staff have created a survival strategy for music stores in the modern, low-cost retail age. He's acknowledged as an early adopter among music instrument retailers for selling through eBay, which he has done for nearly six years.

Gallenberger seeks what he calls "opportunistic deals" to buy large lots of factory-second guitars and boxes full of back-catalog guitar parts from manufacturers and distributors. Then he sells them via eBay at 50 to 55 percent less than the manufacturer's list price.

Warpdrive Music lists hundreds of items at a time on eBay. Some sell, some don't. A recent list of items available included everything from a faux snake skin leather bass guitar strap for $19.95 to a used Godin Flat 5 semi-hollow electric guitar for $729.95.

Warpdrive Music had a 99.8 percent positive customer rating on eBay as of early this week based on more than 10,000 customer responses.

"EBay early on was like shooting fish in a barrel if you were a guitar dealer," Gallenberger said. "Now, it's fishing in a pond -- you have to know where to look because the buyers are smarter and the sellers are smarter."

Gallenberger said Warpdrive Music achieved its highest profit margins its first two years, before eBay became more competitive.

While Warpdrive Music touts itself as emphasizing discontinued products, the Cream City Music store carries high-end and collector instruments, as well as those appealing to thrifty part-time musicians and beginners. Guitar prices run from $59 to $5,900, Gallenberger said.

'Aggressive pricing'

Gallenberger possesses the organizational skills and inquisitiveness to succeed with "aggressive pricing," said Tom Ferrone, a sales representative with U.S. Music Corp., a music instrument distributor in Mundelein, Ill., who sells products to Warp Drive. Those skills are important in an era when the music industry continues to experience price deflation, Ferrone said.

"Joe's very shrewd," he said. "He has a very analytical mind. He really works the numbers, works the margin and works the churn."

Gallenberger, 36, describes himself as "a singer-songwriter and a hobbyist" when it comes to music.

He started in the music instrument business as a teenager working in retail stores, eventually becoming manager of Crown Music, a family business in Bay View at the same address now occupied by Cream City. When the family decided to close the store in late 1998, Gallenberger continued receiving calls at home from people wanting to buy and sell instruments.

By the end of 1999, Gallenberger decided to open Warp Drive Music, as the store was then known, at 2637 S. Kinnickinnic Ave., and had begun selling instruments over eBay. He said he became burned out from running the store and closed it in March 2003 to concentrate on Internet sales.

Gallenberger reopened the retail store in late 2003 under the name Cream City Music. He has since hired his ex-boss from Crown Music, Mike Jazwiecki, who shares the buying duties with Gallenberger. Gallenberger's wife, Jessi, joined the company four years ago and is the administrator and bookkeeper.

The Warp Drive headquarters building's second floor is packed with instruments, parts and accessories. Gallenberger's office consists of a desk and a computer surrounded by boxes that say "Made in China" and "Made in Korea," where many of the instruments are now manufactured.

Beyond the headquarters, Warp Drive was subleasing 1,500 square feet of warehouse space until recently leasing a 6,000-square-foot warehouse space in an industrial area of Milwaukee's near south side.

Gallenberger said he has been able to finance Warp Drive's growth with manufacturer's revolving vendor debt and a bank credit line. However, he said he's considering taking on long-term debt to finance further expansion.

At the ready

During a tour of Warp Drive's headquarters, Gallenberger points out dozens of products that sit at the ready for order and shipping.

How about 10,000 finger boards for acoustic guitars? He's selling them for $20 each compared with $100 from the manufacturer. Guitar builders, known as luthiers, buy such things; the stock will last for years. Then there's a stack of public address systems worth $1 million at retail that he'll sell for an aggregate price of about $100,000.

In terms of new, unblemished specialty instruments, here's a German-made electric ukulele. Warp Drive sold out the stock of a half-dozen shortly after posting them on eBay for $197.

Gallenberger acknowledges that one of the risks of buying manufacturers' "B-stock" is that he has on occasion "stepped too far outside our realm." Nevertheless, he has ambitious growth plans, including opening an office in Malaysia, where one of his employees is moving, to serve the southeast Asian market.

"I'm not a growth maniac, but I want the business to support the people who care about it and want to stay in it," Gallenberger said.