Eighteen months may not be long enough to master Cantonese, but Richard Thomas makes light work of giving directions to the taxi driver for his meeting with Drapers.
A year and a half into his role as managing director of Mosaic Fashions' Hong Kong-based Asian operation, there is no pressure on Thomas to learn the language as a requirement for his job - he chooses to do so for his own personal achievement. It is also good for business, he says, because any local knowledge or investment in the culture goes a long way in building relationships.
Mosaic's Hong Kong office is not on the tourist trail. Located in the Kwun Tong area of Kowloon, the area's industrial and manufacturing hotspot, it is far removed from the gleaming hotels, skyline offices and panoramic harbour views of Hong Kong Island.
Mosaic first opened an office here for its Oasis business in 1996, with only a handful of employees. Now, the group's Far East team comprises 71 staff in a 10,000sq ft office in the Prosperity Centre. From here the group sources product for its high street chains, including Oasis, Coast, Karen Millen and Whistles.
The merger of Mosaic with Rubicon Retail last year added Warehouse, Principles and Shoe Studio Group to its portfolio. The deal has meant fresh challenges for the business in terms of integrating its sourcing while maintaining the separate needs of each chain.
Recently, Mosaic has also had to cope with an outbreak of the SARS disease and the EU import quota saga of a couple of years ago. It now faces rising manufacturing costs in China, growing competition from emerging countries and, like any other fashion business, the ethics of its operations are being closely scrutinised, both internally and externally.
According to Thomas, the Hong Kong office fulfils two main roles. "We supply to the UK, but it has to be the right quality at the right value. But we also contribute a modest profit to the business. We charge a commission on everything we source, and we see the brands as our customers. We can work on quite low overheads and with lower profit margins than a plc. It's much better value than working through an independent sourcing agent."
One of the factors that keeps Thomas and his team on the lookout for sourcing opportunities is the fact that their business is not guaranteed. "The brands don't have to use us, and we have to earn the business," he explains. "Each brand uses us to a different degree. Karen Millen does some direct sourcing, while Whistles has other bought-in brands."
Managing Mosaic's operations has been more challenging since the acquisition of Rubicon Retail last year. The additions have meant a more varied sourcing model, rather than a major restructure. Principles, for example, still has links with Arcadia's Far East office from when it was part of the old Arcadia Group.
"These businesses come with their own supply chains and sourcing relationships, which have worked very well for them," says Thomas. "Warehouse has a strong relationship with direct sourcing. It works well so we're not trying to change it. It wouldn't be appropriate for us to suddenly say 'let's do it all from here'."
Of the group's businesses, Coast, whose woven, silk and embellished merchandise is a Chinese specialism, carries out the highest proportion of its sourcing via the Hong Kong office - about 70%. Oasis sources roughly 30% of its product this way.
Before joining Mosaic at the start of last year, Thomas spent two years as head of sourcing at Monsoon and Accessorize. Before that he was at Marks & Spencer for 10 years, where he was a buyer for knitwear and jerseywear. As managing director of Mosaic Asia, Thomas oversees eight divisions which include dedicated teams for the different Mosaic chains, as well as for quality control and operations.
The group's thriving lingerie and swimwear offer has resulted in a dedicated division, Mosaic Intimates, which will pool its sourcing resources and operations. Mosaic's Odille lingerie arm has a growing wholesale presence outside the group's stores, while Karen Millen is launching its own lingerie and swimwear offer.
The acquisition of Rubicon Retail, backed by a consortium led by Icelandic investment group Baugur, has led to other opportunities. Some 5% of the business that goes through Mosaic's Hong Kong office is for third-party operators, including other Baugur investments such as young fashion chain All Saints and the Criminal and PPQ brands.
As Mosaic has expanded, the Asian office has increased in scale, adding a dedicated knitwear and jerseywear department which functions across the group. However, Thomas says his business works hard to ensure that each chains' personality is not sacrificed for economies of scale. He says: "We've had occasions where we've had to rearrange the sourcing to maintain the points of difference. When Warehouse and Oasis were using the same supplier, the handwriting became too similar. So the brand directors and myself decided to use different suppliers."
But in the fast-changing environment of global sourcing, Thomas is careful not to put all his eggs in one basket. The company set up a Shanghai office in the middle of last year, and he says locations such as Cambodia, Vietnam and Thailand could be on the cards.
"The SARS epidemic knocked confidence in the sustainability of China as a place to source. It has all settled down now, but at the time there was uncertainty, and it forced us to look at other opportunities," he says. "About 70% of Mosaics' Far East supply is Hong Kong-based. It is important, but I expect it will decrease over the next five years. We need our fingers in all the right pies. Factories in south China offer good quality, but don't have the Hong Kong overheads, so are good value. But there are language and cultural differences, so time must be invested. Further north, around Shanghai, accessories are a strength, and there's a lower cost base. But we only look for quality suppliers, because all the brands are mid- to high-end."
Mosaic, like most UK high street retailers, has had to react to growing shopper demand for faster fashion. Thomas says his set-up retains a flexibility that suits the group's spread of businesses.
Highly-embellished product typically has a lead time of about 90 days, with denim and jeans between 45 and 60 days. Thomas says: "You need a balance, so you source close to home for speed of response. Meanwhile the Far East is good for technical expertise, value - because of efficiency, not cheap labour - and fabrics such as silk. But lead times from the Far East have been getting faster, which has helped."
Another key consideration for Thomas is maintaining a competitive edge, especially in the face of price deflation in the UK and shoppers' changing perception of value. "Now more than ever, retailers and suppliers are constantly looking at the cost base. Quotas have become cheaper and cheaper, and next year it's likely there won't be any," he says.
However, general manufacturing costs have been rising steadily over the past 18 months. "In Hong Kong the economy is booming and it is difficult to hang on to staff," says Thomas. "There is a higher staff turnover than in the UK, and demand for garment merchandisers is very high. The Chinese currency is becoming more expensive and labour rates are increasing, so the cost of Chinese factories is going up."
While pressure on price increases, the demand to comply with ethical trading standards is also growing. According to Thomas, both retailers and consumers are fuelling the demand for ethical products. However, he adds that ethical manufacturers tend to be the best choice.
"It's a myth that unethical suppliers and factories are cheaper," he says. "The labour may cost less, but they have problems such as strikes and other disruptions. No retailer says they are issue-free, but we conduct regular audits."
Even when a big repeat order comes in at short notice, the business is careful to avoid dealing with unproven manufacturers. "When a style is successful it shouldn't be a complete surprise to us," explains Thomas. "The supplier is briefed to make the fabric, and we might even commit to the fabric upfront. We may already have bought the dye and so on. We book capacity on the machines, so we can make the decision later on what we actually produce."
According to Thomas, the next three to four years will be the most challenging for his team. "We need to be competitive and resist price inflation," he says. "We have to provide more newness, more quality and better value.
"But China and Russia are also emerging retail markets -Mosaic already has about 1,850 outlets in 34 countries, and that will grow. Mosaic brands are also moving online and we're developing swimwear and lingerie product. It means there will be plenty of opportunities yet for expanding Mosaic's Asian operations."
MOSAIC FASHIONS' FAR EAST SOURCING
50% of Mosaic's total Far East sourcing is carried out via the Hong Kong office.
Brand: % of stock sourced from Hong Kong
Karen Millen: 65%
Warehouse, Principles and Shoe Studio Group have also begun sourcing from Hong Kong.