CASE: Richer Sounds

RICHER SOUNDS

Richer Sounds is the largest hi-fi separates and home cinema retailer in the UK,
although it is a small firm characterised by a small market share, personalised
management and owner control. It has over 50 branches across the country , a
warehouse, and a head office. It employs over 400 full-time staff, with a handful of
part-time ‘casuals‘.

The company is an unlisted plc, owned by Julian Richer, a self-made entrepreneur. As in

many small firms, the owner-manager exerts a strong influence and there is a
considerable background story to Richer. The official story is disseminated in much of
the company literature e.g. the Richer Way
(https://www.richersounds.com/information/the_richer_way). According to this
literature, at the age of 14 he bought and sold second-hand turntables to make
money and he was also involved in buying and selling candles during the energy
crisis. Richer opened his first shop in 1978, aged 19, on £20,000 borrowed from a
photographic retailer who regarded him as a "whiz kid". In 1985, as profits mounted,
Richer bought out his percentage of the business.

The hi-fi market has two elements: one comprises the package of complete music
systems, which are dominated by the retail chains, both department stores and
general electrical retailers. The second is the more specialised hi-fi separates where
consumers mix and match hi-fi components from various manufacturers. In the latter
market, product knowledge is high and the market offers a niche to small retailers
such as Richer Sounds.

The company‘s strategy.

The company's success comes from high stock turnover combined with low
overheads. It sells discounted, often discontinued end-of-line, products in small
shops (average size under 200 square feet) in secondary (non-High Street)
locations. Richer has overcome the unwillingness of some major companies to deal
with them and the company has been in the Guinness Book of Records for having
the highest sales value per square foot of any major retailer in the world, as well as
the highest sales per employee.

Company Philosophy - A Quality Customer Service

The owner argues that the basic principles underpinning Richer Sounds are a) quality
products (branded names, etc), b) value for money and c) customer service. He points
out that whilst the first two can be controlled by head office, customer service is very

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much in the hands of the ordinary branch employee, and hence this needs to be
given particular attention.

Quality customer service is seen as the driving philosophy behind the organisation.
Officially, this is stated as "providing second to none service and value for money for our
customers". More simply, the idea is that excellent customer service is not a ―sell at all
costs‖ philosophy. Employees are encouraged to help the customer buy what they want
rather than go for the ‘hard sell‘. The small shops are also seen to facilitate a more
informal and friendly atmosphere. Judging from the company's own internal staff attitude
survey, the customer service message seems to have come through clearly. 100% of
staff agreed with the proposition that "customers are number one at Richer Sounds".
(That said, branches do not provide demonstrations in busy hours and the company
claims that the "nearest you get to installation is an instruction book".) Evidence of
Richer Sounds emphasis on customer service can be found in their joint top rating in the
Which? High street shop survey in 2010 as the only retailer top get a maximum 5* rating
for both its competitive prices and its customer service. (see
http://www.guardian.co.uk/money/2010/may/27/top-100-uk-shops )

There is a distinct American flavour of the type promulgated by American management

gurus Peters and Waterman's bestselling "In Search of Excellence" (1982), and seen in
companies in the UK like the restaurant chain TGI Fridays. Indeed, the Chairman, Julian
Richer, claims that the book changed his life. The organisation chart is presented in
inverted form, with the customer at the top, followed by sales staff (called colleagues)
and middle management and ending with the senior (top) management, to reflect the
importance of customers and ordinary staff members. However, there is no question
concerning who is in charge of the company. Richer himself says he "leads from the
front" and that the firm is a "benevolent dictatorship".

The emphasis is very much on "fun" for customers (and also for staff). Customers
are invited to bring their pets to help them choose their purchase. Those buying a hi-
fi when it is raining receive a free umbrella, and scratch cards with free gifts are
distributed. Even the warnings to shoplifters are done with humour - "Free ride in a
police car for shoplifters only". Most staff seem to share this sense of fun and from
the last staff survey – see Appendix 2 – an impressive 90% of colleagues find their
teams ―fun to work with‖, and 91% say that they can have a laugh with colleagues.

The company has a freefone 24 hour a day customer problem line, with a Board director
having responsibility for handling customer complaints. A "We're listening" suggestion
card scheme provides the opportunity for those customers who do not buy to make
comments, and this is sent directly to the Chairman. Sales colleagues are

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expected to make a number of customer telephone calls each week, aimed in

particular at older customers and first- time buyers, to ensure that they are satisfied
with the purchased items.

Management style
The basic management style has been described as "fun but caring". Influences
include Peters and Waterman, as well as the UK retailer Marks and Spencer (the
latter from the Chairman's parents, who worked there). It finds expression in
paternalist attitudes, evidenced in the company‘s HR policies below, and the ongoing
effort to create a "family" feeling to the firm.

HR policies.
In common with most small firms, Richer Sounds is characterised by personalised
management with informality and close relations in contrast to the bureaucratic
relations of large firms. However, for a small firm, the company has quite a
sophisticated range of personnel policies and practices. The array of HR innovations
is wide and it is the management philosophy to continually develop these in a bid to
maintain the sense of involvement and fun.

Like McDonalds or EuroDisney, Richer Sounds‘ induction is intense with staff

embued with the ethos, history, standards and values of the organisation. Corporate
communications, marketing and training become one. The induction booklet includes
details of the company philosophy, the organisational chart, company history,
contract, blank suggestion slips, an A-Z of hi-fi terms, a health booklet and a 50-page
staff training manual.

Recruitment is primarily word-of-mouth. If "love of product" is a result of a

successfully managed culture, then an organisation that recruits staff already
interested in the product have a head start. Staff receive a bonus for introducing new
employees to the company. Clearly this system of personal recommendations can
help facilitate an integrated workforce and, where existing, social relationships can
exert pressure on new recruits to perform. However, it also raises issues of equality
of opportunity and favours for friends.

In small firms, the frequency of personal contact tends to lead managers to regard
more formalised channels as unnecessary, but the potential isolation of branches
from head office in Richer has led to communications being regarded as something
that must be managed. A weekly video is produced with details of company
performance. There are also regular seminars.

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The company has a policy of only promoting internally, except for expert specialists
such as Marketing. Many staff are young hi-fi enthusiasts who enjoy working in the
"informal" environment (though the informality is a carefully managed one), and
dealing with other hi-fi enthusiasts.

Given the specialised nature of the products, staff need a high degree of product
knowledge. This is sourced in recruitment and provided for otherwise through
detailed in-house training.

Staff wear name badges to encourage greater individual responsibility in dealings with
customers. Peer group pressure is also central to this operation and the small branch
size with no more than a handful of employees brings out the visibility of staff actions.

The company runs a highly successful suggestion scheme, which has won the UK
Association of Suggestion Scheme prize for the highest number of suggestions per
staff (e.g. 1,500 from 70 staff in one year). Staff are rewarded with up to £500 for
each suggestion, with the best two (not necessarily those which save the most
money) each quarter receiving a day trip on the Orient Express, private jet etc. To
facilitate suggestions, there is a monthly drinks allowance so employees can go out
as a group to discuss possible ideas. Many ideas are hard to quantify in terms of
bottom line impact (for example, a bell provided for disabled shoppers), but the
scheme is seen in the broader context of building morale and team spirit. All
suggestions are seen and replied to by the Chairman.

In terms of performance management, the company computes a Customer Service

Index (CSI) for each member of staff. Individuals are assessed monthly on a range of
indicators with results related to payment (see the dedicated section on this below).

Pay is above average for the industry. Senior sales assistants earn a basic rate in
the upper quartile for retailing and commissions, profit share and the customer
service bonus (see below) can raise this substantially. Profit share alone has worked
out at around £3,500 extra for each sales colleague in recent years. Around 20% of
profits are directed either to profit share (c. 15%), to charity (c. 5% - 15%), or to a
hardship fund (c. 1%). Staff who perform ―above and beyond the call of duty‖
(―ABCD‖ in Richerspeak) receive gold aeroplanes in recognition; wooden spoons
are given to staff for acts of amazing stupidity. Other staff benefits include life
insurance and a subsidised medical scheme.

As well as incentives based on the individual there are also team/group incentives to
encourage quality. For example, a competition is held between all the branches and

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departments. This is the Richer Way League which is run on the basis of Customer
Service and profit but not sales. The prize is the use of a Bentley for a week: "We
measure different aspects of performance to give everyone an equal chance. The
winners share the car between them. So a branch of four colleagues each get the
Bentley for a week.‖

The company provides subsidised outings three times a year for staff and training
sessions take place twice yearly at the Chairman's country home in York. Company-
owned holiday homes (originally in Eastbourne and Scarborough, now in St Tropez
and Venice) are made available free to staff – a benefit which the Inland Revenue
costs and on which the company pays tax. All staff are provided with the Chairman's
home phone number.

Surprisingly for a small organisation and its emphasis on informality, the company's
staff satisfaction is monitored via an annual attitude survey. Recent surveys (with an
80% response rate) found that 95% respondents claimed they enjoyed the job, 88%
saying that they believed payment reflected the job they did and 91% have faith in
his leadership and 90% feel he is full of positive energy, 87% think he is inspirational
and 98% — the highest score — say that the company has strong principles for
treating customers well. It is also interesting to note that 95% felt that they worked
"very much as a team" in their store/department.

Table 1 – The people management approach at Richer

Employee entry channels Through personal contacts of

employees

Work structure Formalised but high involvement

Task performance Rule-bound but high involvement
Reward systems Formalised but dynamic
Working culture Management-created

Retention and High initial turnover, reduces after 6

development months.

This is not done for altruistic reasons. As Richer himself has noted,

"If you are good to your people, it saves enormous recruitment and training
costs; they are happier, which is so much the better for the customers".

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The HR approach appears to be successful, in 2002, Richer Sounds was judged as

the best British-owned company to work for by the Sunday Times.

Linking Rewards with Customer satisfaction

The company believes in linking customer satisfaction and pay. A customer service
index (CSI) is used to assess individual employees on a range of indicators: how
quickly they answer the phone, the number of customer complaints, quality of overall
service, positive and negative comments from questionnaires, and punctuality.
Additionally, each customer receipt includes a freepost questionnaire, with the
customer invited to assess the level of service provided by the salesperson, who is
identified by payroll number on the form (see Appendix 1). Questionnaires are mailed
direct to the Chairman and the company claims a 30% response rate. These are
totalled up at the end of each month and individuals‘ bonuses are related to this
feedback. Thus, if a customer ticks "excellent" the sales colleague receives an extra
£X; if they tick "poor", a deduction of £X is made from their salary (see Table 2). The
company is at pains to point out that any deductions are far outweighed by the
bonuses. Indeed, it is unlikely that anyone with a stream of negative feedback would
actually retain their job at Richer Sounds. Peer pressure is critical: individuals‘ CSI
results are fed to managers and are then published and distributed internally.
Clearly, staff who have performed poorly are put under pressure to improve their
performance or leave the organisation.

Table 2 - Pay and Customer Service [these are fictitious but representative
figures].

HOW WOULD YOU DESCRIBE THE

OVERALL LEVEL OF SERVICE YOU
RECEIVED?
Bonus to staff Rating Analysis (for first quarter of
(£X) year Y)
3 Excellent 74%

0 Good 21%

-1 Mediocre 3.5%

-3 Poor 1.5%

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The commission part of the remuneration package counts for more in monetary
terms than the cash CSI bonus. Thus, the CSI – the possibility of a negative
assessment of one‘s service, public salary deductions, and more importantly
disciplinary action from pushing sales too much – acts more as a corrective to the
sales-oriented commission payments than as a direct incentive itself.

Does it work?

Richer Sounds has been profitable for all the years of its operation. This includes
recent years when “traditional” physical retailers face substantial problems. For
example, the company saw its profits being very healthy in 2019
(https://www.standard.co.uk/business/richer-sounds-saw-profits-growth-ahead-of-
handing-control-to-staff-a4276416.html). Richers has also been in The Guinness
Book of records for the world‘s highest sales value per square foot of any major
retailer, and the highest sales per employee. Its Staff turnover is very low, although
there is what the firm calls a "high infant mortality rate" - that is, people do leave
because they are unable to adapt to the culture (the so-called “induction crisis‘).
Stock shrinkage is half that in the industry as a whole. In 2019 Richer handed 60% of
the business to employees in the formation of a partnership (a trust that holds the
shares on behalf of the employees, in a governance system where employees will
have influence, see links in Appendix 2).
_________

APPENDIX 1: THE CUSTOMER SATISFACTION SURVEY.

Please help us to give you 100% satisfaction
Dear Customer

In a serious attempt to improve our service to you we'd be extremely grateful if you'd
spend a couple of minutes filling in this short questionnaire. Our aim is to give you
the very best service because by doing so, we hope you'll recommend us to others
and be a customer for life.

Please help us by giving your frank answers to a few simple questions because it is
only by listening to what you say we can improve our standards. If the service you
received was good then I'd like to hear about it; if it has not been up to scratch in any
way I need to hear about it.

I will be seeing all your replies and comments to please do tell me what you think.

Thank you for your help.

Julian Richer, Founder

1. Was the sales assistant who served you friendly?

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    
Excellent Good Mediocre Poor
2. If you required technical information and the sales assistant was not familiar with
your question, was he/she helpful in obtaining it?

   
Excellent Good Mediocre Poor N/A 
3. Was the sales assistant who served you too pushy?

 
Yes No
4. How would you describe the overall level of service?

   
Excellent Good Mediocre Poor
  
5. Would you recommend us to others? Yes Maybe No

6. If you have tried to get through to us on the phone have you experienced
difficulties?
 
Yes No Haven't tried 
7. Branch visit
__________________________________________________________

   
8. How old are you? Under 18 18-30 31-40 41+

9. Do you have any comments or suggestions to improve the service you received,
or any complaints or grievances however small? (Your comments would be
particularly appreciated in the areas you rated mediocre or poor).

APPENDIX 2: ADDITIONAL WEB-Links

https://www.theguardian.com/business/2019/may/14/richer-sounds-staff-julian-richer

https://fairtaxmark.net/richer-sounds-care/
https://www.youtube.com/channel/UCXdQJbThQMHNfK_OI2m2e6Q/featured

https://www.retailgazette.co.uk/blog/2019/05/richer-sounds-founder-hands-
over-control-to-staff-pays-them-bonuses/

https://www.forbes.com/sites/oliverwilliams1/2019/05/15/why-julian-richer-
gave-his-multimillion-dollar-firm-to-employees/?sh=1330834749e1
https://www.theguardian.com/commentisfree/2019/may/16/the-guardian-view-on-
richer-sounds-mutual-benefits

______________________________

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