A gap between perception and reality. In the luxury sector, the vast majority of chief executives (85%) regard technology as strategic, yet only 35% of CIOs sit on executive committees. This is one of the headline findings of the latest Bain & Co study, conducted with the Comité Colbert, which brings together around 80 French and international luxury houses, on technology investment in the luxury industry.

The study, based on a survey and discussions with executives from luxury groups and houses, provides a revealing snapshot of the growing importance of technology in the sector. The firm explains that it “conducted an in-depth analysis of the sector’s technological foundations and investment strategies.”

According to decision-makers, the European luxury sector “devotes an average of 3.1% of revenue to technology, but this amount can vary from 1.9% to 5.5%.”

Interestingly, the shares are similar for groups and SMEs. More than a third of respondents also believe they already have the technological capabilities required to deliver their strategy.

“The current context for luxury appears conducive to accelerating the sector’s technological transformation. The market slowdown is pushing leaders to optimise resource allocation across all activities, including the technology function. Meanwhile, the rise of artificial intelligence tools is paving the way for significant productivity gains across functions, in support of more disciplined growth,” said the report.

In practical terms, the more challenging period that groups and the sector are experiencing after exponential growth up to 2022 provides a rationale for accelerating the transformation of their model.

So, is luxury at the cutting edge of technological progress? Not quite. The value of this report lies in its granular look at these “tech” budgets and, above all, in comparing them with other sectors. These budgets encompass operating costs, capital expenditure (CapEx) and personnel costs.

See fashion show

The study finds that the narrow gap between large groups and SMEs in the percentage of revenue invested “can be explained in part by the fact that the industry’s main players have grown through acquisitions, and may then struggle to realise synergies, given each brand’s identity and autonomy. Legacy technology systems, as well as the widespread use of often costly external service providers, can be additional brakes”.

While the luxury sector, with its deep culture of know-how, craftsmanship and exclusivity, embarked on its transformations relatively late compared with other industries, the cost of operating existing systems, referred to in the study as “run”, remains substantial.

“On average, the companies surveyed allocate 63% of their technology budget to ‘run’, compared with just 37% to ‘change’ initiatives. In other industries, the share of spending dedicated to modernisation projects tends to be higher, sometimes reaching almost 50%,” the report stated.

It follows that the luxury industry must invest in transformation to reduce costs progressively, by sharing solutions across different layers within groups to avoid duplication, or by bringing strategic technology capabilities in-house. While it appears certain that significant sums will be released (60% of players surveyed expect their technology expenditure to rise by more than 5% in value over the next 2 to 3 years, with 28% even anticipating an increase of more than 10%), the choices made about transformation investments will be strategically decisive.

The study highlights that top management has tended to approve transformation investments in technologies that deliver a direct and visible impact on the business. During the Covid-19 pandemic and lockdowns, brands accelerated these to develop new customer-relationship solutions. This accounts for 40% of their “change” budget, compared with 32% and 36% in the retail and consumer goods sectors respectively. By contrast, major investments in less visible but more fundamental tools for transforming corporate activities are more modest. Spending on data and artificial intelligence accounts for 21% of the budget, compared with 26% and 36% respectively in the consumer goods and retail sectors. The study suggests that organisational and “back-office” domains now attract the majority of projects and budgets.

These technology investments and the way priorities are managed are proving decisive in competition between luxury groups and their peers, as well as in attracting affluent consumers. Yet the challenges are varied. The sector still relies heavily on external service providers and sometimes entrusts strategic matters to third parties. This may be due to a lack of in-house expertise, but also to necessity: recruiting technology experts remains extremely challenging, and competition for talent is fierce across sectors.

See fashion show

The other major issue, subtly addressed by the study, concerns embedding a culture of technology.

“Closer collaboration between the CEO and the CIO can help luxury groups build competitive advantages, as the industry enters a new phase of technological maturity,” continued the report.

Technology experts, in fact, observe a major gap depending on the CEO’s level of engagement with transformation.

As with environmental transformation, technological change requires the support and clear vision of senior management. The delay in integrating specialists into executive committees (83% in the retail sector versus 35% in the luxury sector) reveals an often unspoken apprehension within groups. CIOs’ expectations also differ markedly depending on whether the CEO embraces technology or not. Overall, however, to deliver a strategy successfully they expect a clear roadmap and strong executive sponsorship for projects.

According to industry specialists, beyond hiring new talent, if luxury players are to address technology effectively, it is essential that a new generation of leaders comes to the fore. While building on their predecessors’ cultural legacy, craftsmanship and commitment to customer service, they will also need to be well versed in infrastructure, digital development and the judicious use of AI and data.