Luxury: Technology is in the heart of the strategy, but remains marginal within the Executive Committees

A gap between perception and reality. In the luxury sector, the vast majority of executive directors (85%) consider technology as strategic, but only 35% of the CIO sit in the executive committees. This is one of the main findings of the latest BAIN & CO, conducted with the Colbert Committee, which brings together around 80 French and international luxury houses, on technological investments in the luxury industry.

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

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

Interestingly, the actions are similar for groups and SMEs. More than a third of respondents also believe that they already have the necessary technological abilities to offer their strategy.

“The current context for luxury seems conducive to accelerating the technological transformation of the sector. Market deceleration is promoting leaders to optimize the allocation of resources in all activities, including the technological function. Meanwhile, the increase in artificial intelligence tools is raiding the way to obtain important productivity profits in all functions, in support of a more disciplined growth,” the report said.

In practical terms, the most challenging period that groups and the sector are experiencing after an exponential growth up to 2022 provides a justification to accelerate the transformation of its model.

So is the luxury at the forefront of technological progress? Not quite. The value of this report lies in your granular gaze to these “technological” budgets and, above all, when comparing them with other sectors. These budgets cover operating costs, capital spending (CAPEX) and personnel costs.

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The study finds that the narrow gap between large groups and SMEs in the percentage of invested income “can be partly explained by the fact that the main actors in the industry have grown through acquisitions, and then it can have difficulties in making synergies, identity and autonomy of each brand. Inherited technology systems, as well as the use of suppliers of external services profitable of often profitable, can be additional excesses.

Although the luxury sector, with its deep culture of knowledge, crafts and exclusivity, embarks on its transformations relatively late compared to other industries, the cost of operating existing systems, mentioned in the study as “execution”, remains substantial.

“On average, the companies surveyed allocate 63% of their technological budget to 'execute', compared to only 37% to 'change' initiatives. In other industries, the proportion of expenses dedicated to modernization projects tends to be higher, sometimes reaching almost 50%,” said the report.

It follows that the luxury industry must invest in the transformation to reduce costs progressively, sharing solutions in different layers within the groups to avoid duplication, or by bringing strategic technology capabilities internally. While it seems certain that significant sums will be published (60% of the players surveyed expect their technological expense to increase more than 5% in value in the next 2 to 3 years, and 28% even anticipates an increase of more than 10%), the elections taken on transformation investments will be strategically decisive.

The study highlights that senior management has tended to approve transformation investments into technologies that provide a direct and visible impact on the business. During the Pandemia and the COVID-19 blocks, the brands accelerated them to develop new client relationship solutions. This represents 40% of its “change” budget, compared to 32% and 36% in retail and consumer goods sectors, respectively. On the contrary, large investments in less visible but more fundamental tools to transform corporate activities are more modest. Data spending and artificial intelligence represents 21% of the budget, compared to 26% and 36% respectively in the sectors of consumer goods and retailers. The study suggests that organizational domains and “back-offce” now attract most projects and budgets.

These technological investments and the way in which priorities are managed are demonstrating to be decisive in competition between luxury groups and their peers, as well as to attract rich consumers. However, the challenges are varied. The sector still depends largely on external service providers and sometimes trusts strategic issues to third parties. This may be due to the lack of internal experience, but also to the need: the recruitment of technology experts remains extremely challenging, and the competition for talent is fierce in all sectors.

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The other important problem, subtly approached by the study, refers to embedding a culture of technology.

“The closest collaboration between CEO and CIO can help luxury groups to develop competitive advantages, since the industry enters a new phase of technological maturity,” the report continued.

Technology experts, in fact, observe an important gap depending on the level of commitment of the CEO with the transformation.

As with environmental transformation, technological change requires the support and clear vision of senior management. The delay in the integration of specialists in executive committees (83% in the retail sector versus 35% in the luxury sector) reveals a often tacit apprehension within the groups. The expectations of the CIO also differ significantly depending on whether the CEO adopts technology or not. In general, however, to offer a successful strategy, they expect a clear road map and a strong executive sponsorship for projects.

According to industry specialists, beyond hiring new talents, if luxury players must address technology effectively, it is essential that a new generation of leaders come to light. While they are based on the cultural legacy of their predecessors, crafts and commitment to customer service, they must also be well versed in infrastructure, digital development and judicious use of AI and data.