McKinsey associate partner Thomas Rüdiger Smith has warned fashion brands to prepare for a 10 per cent reduction in apparel space over the next five to 10 years, as more customers shop online, retailers focus on smaller stores and some businesses go bust.

Speaking at an event organised by the Australian Fashion Council (AFC) to showcase emerging Australian designers in Melbourne on Wednesday, Rüdiger Smith described this as the “very bleak” analytical view of the landscape.

“If you look where consumers are heading, they’re heading online,” he told Inside Retail. 

“The only real industry we believe will need more space going forward is grocery, because grocery tends to grow with GDP. But a lot of the other sectors are challenged by the rise of omnichannel.” 

Smaller, more localised stores to rise

But that doesn’t necessarily mean bricks-and-mortar stores are dead. Rüdiger Smith pointed to the US, where major retailers like Target and Nordstrom are seeing success with smaller stores with more localised ranges.

“If you have a store in Bondi, you don’t need to have the full range of products. You need to have the ones relevant to the Bondi crowd. It’s the same in Fitzroy,” he said. 

At the same time, he believes retailers will start to close unprofitable stores in greater numbers. 

A smaller offline apparel market means brands will need to rethink the way they reach their customers.

Long term, Rüdiger Smith said brands need to become less reliant on being stocked in bricks-and-mortar stores and focus more on direct-to-consumer sales. The impact of the coronavirus makes this shift even more pressing, he said.

“Overall, it’s going to be tough. What we’re seeing in China is a massive slowdown. But L’Oreal reported a 25 per cent increase in their online sales for the month of January. People are at home shopping online. Less so for apparel – much more for essentials – but as it wears on, that will be more and more of a trend,” he said.

Huge stores on their way out

Leila Naja Hibri, AFC’s new CEO, agreed that huge stores are on their way out.

“It’s not about a three-storey Chanel store in Hong Kong airport, where you go in and get lost for hours,” she said. 

“Potentially, it’s about a collection of 18 pieces that change every month. Potentially, it’s about not having stock in-store. Why not have one item in every size [that customers can try on] and then send it to their house?”

Emerging designers may be best placed to thrive in this changing bricks-and-mortar landscape because many of them are already questioning traditional ways of selling.

Clare Press, sustainability editor for Vogue Australia, who moderated the discussion with Rüdiger Smith and Naja Hibri, noted that several designers have returned to making products to order, which not only suits a smaller bricks-and-mortar footprint, but is also more sustainable. 

“There are possibilities and opportunities for small brands to be more nimble and respond to the market in that way, rather than with more stock,” Press said.

AFC Curated highlights emerging design talent

The event on Wednesday kicked off this year’s AFC Curated, a unique retail and business development program that supports the growth of emerging designers by providing them with retail experience and exposure, tailored small business workshops, one-on-one mentorship with industry experts and a community of industry peers.

The brands selected to participate in this year’s Curated program will be featured in AFC’s pop-up at Emporium Melbourne from March 4-15. They include:

Byfreer

Iole Lingerie

Perple

Sunshine Symbol

Surrounded by Ghosts

X Nihilo

Aura Studios

Demkiw

Frank & Dolly’s 

G Terlato

Lindsay Nicholas New York

Serpent & The Swan

Simetrie