Luxury Brands Lag in Tech Despite CEO Buy-in CIOs Excluded from Executive Power

A recent comprehensive study by Bain & Co., in collaboration with the Comité Colbert, a collective of leading French and international luxury houses, has brought to light a significant disconnect in the luxury sector regarding technology. While a vast majority of chief executives, 85% to be precise, view technology as a strategic imperative for their businesses, a stark contrast emerges in practice: only 35% of Chief Information Officers (CIOs) currently hold positions on executive committees. This critical finding underscores a tangible gap between leadership perception and organizational reality in the luxury industry's approach to digital transformation.

The study, which encompassed surveys and in-depth discussions with executives from across the luxury landscape, offers a detailed snapshot of technology's evolving role. It reveals that the European luxury sector commits an average of 3.1% of its revenue to technology investments, a figure that can fluctuate significantly, from 1.9% to 5.5%. Interestingly, this investment proportion remains relatively consistent between large luxury groups and smaller to medium-sized enterprises (SMEs). Furthermore, over a third of respondents expressed confidence in their existing technological capabilities to execute their strategic objectives.

The current market dynamics appear to be creating an opportune environment for accelerating technological transformation within the luxury sector. A prevailing market slowdown is prompting leaders to meticulously optimize resource allocation across all functions, including technology. Concurrently, the proliferation of artificial intelligence tools is opening new avenues for substantial productivity gains across various business areas, thereby supporting more disciplined and sustainable growth. This challenging period, following a phase of exponential expansion up to 2022, is providing a compelling rationale for luxury brands to overhaul their operational models.

Despite these motivations, the study indicates that the luxury industry is not yet at the forefront of technological advancement when compared to other sectors. A detailed examination of "tech" budgets—comprising operating costs, capital expenditure (CapEx), and personnel costs—reveals insights into this positioning. The narrow difference in percentage of revenue invested between large groups and SMEs is partly attributed to growth through acquisitions, which can lead to difficulties in achieving synergies due to distinct brand identities and autonomy. Legacy technology systems and a prevalent reliance on often expensive external service providers also contribute to this lag.

The luxury sector, deeply rooted in its heritage of craftsmanship, know-how, and exclusivity, embarked on its digital transformation journey later than many other industries. A significant portion of its technology budget, averaging 63%, is still allocated to "run" costs—the maintenance and operation of existing systems. This leaves only 37% for "change" initiatives, which encompass modernization and innovation projects. In stark contrast, other industries typically dedicate a higher share, sometimes almost 50%, to modernization. This imbalance highlights the need for strategic investment in transformation to progressively reduce operational costs, potentially through shared solutions across various entities within groups or by internalizing strategic technological capabilities.

Looking ahead, a substantial increase in technology expenditure is anticipated, with 60% of surveyed players expecting their tech spending to rise by more than 5% in value over the next two to three years, and 28% forecasting an increase exceeding 10%. The decisions made regarding these transformation investments will be strategically crucial. The study points out that top management has historically favored approving investments in technologies that offer a direct and visible impact on the business. For instance, during the Covid-19 pandemic, brands rapidly invested in new customer-relationship solutions, which now account for 40% of their "change" budget—a higher proportion than in the retail (32%) and consumer goods (36%) sectors. Conversely, major investments in less visible but foundational tools, such as data and artificial intelligence, remain more modest, representing only 21% of the budget compared to 26% and 36% in consumer goods and retail, respectively. However, organizational and "back-office" improvements are now beginning to attract a larger share of projects and budgets.

These strategic technology investments and the prioritization of initiatives are increasingly critical for luxury groups to maintain competitiveness and attract affluent consumers. The challenges are multifaceted, including a heavy reliance on external service providers for even strategic matters, often stemming from a deficit of in-house expertise. Recruiting skilled technology professionals remains a significant hurdle, as competition for talent is fierce across all sectors. Beyond talent acquisition, the study subtly emphasizes another pivotal concern: embedding a robust culture of technology throughout the organization.

A more integrated collaboration between the CEO and the CIO is essential for luxury groups to forge competitive advantages as the industry moves into a new phase of technological maturity. Experts observe a direct correlation between the CEO's level of engagement with digital transformation and the success of these initiatives. Similar to environmental transformations, technological change necessitates strong support and a clear vision from senior management. The notable delay in integrating technology specialists into executive committees—35% in luxury versus 83% in the retail sector—indicates an underlying apprehension within these groups. Ultimately, CIOs require a clear roadmap and robust executive sponsorship for projects to successfully deliver on their strategic objectives.

Industry specialists contend that beyond merely recruiting new talent, effectively addressing technology in the luxury sector demands the rise of a new generation of leaders. While these leaders must uphold the cultural legacy, commitment to craftsmanship, and dedication to customer service inherited from their predecessors, they also need to be deeply knowledgeable in areas such as infrastructure, digital development, and the judicious application of AI and data. This dual expertise will be fundamental in bridging the gap between perception and reality, steering the luxury industry towards a truly technologically advanced future.