Become a common practice when changing commodity arbitrage

Become a common practice when changing commodity arbitrage, any retailer will not sit idly by.So the premise of the development of the two differences in management to solve R & D center are only two options: to increase the price of the lower-priced areas, at the expense of the original sales under the premise; Second, to reduce prices at higher goods prices for originally risky purchase FALSIFYING this part of the passenger.So LVMH and Prada what would become or wrong why LVMH dare to take the risk of decline in sales have to raise prices, and Prada, why have emboldened price cuts?Following two of my personal ideas: The first idea, try operating leverage (Degree of Operational Leverage) theory to explain the luxury goods company in the end should raise prices or price cuts.To simplify the problem, I made a few assumptions: 1, the luxury goods company's ultimate goal is to expand the operating profit.LVMH and Prada overseas price or domestic price cuts, just for tourism consumption of luxury goods crowd, I do not consider overseas luxury consumer groups, or the birth of the new consumer groups after the price of domestic brands.3, the same as the pricing of luxury goods in China or overseas, the comparison between the two brands overall performance rather than regional results.4, LVMH and Prada in Chinese tourism consumption of luxury goods crowd the minds of product quality is basically the same, with a clear price elastic properties. , Operating leverage theory, the luxury manufacturers due to the goodwill and brand value, are often faced with a larger proportion of fixed costs, then according to the theory of operating leverage, the greater its production and sales, unit fixed costs The more diluted, the smaller the unit cost, so reflected in the operating profit (EBIT) growth rate is greater than the sales growth, in the case of constant prices, is the operating profit (EBIT) growth will be greater than the revenue growth.But compare LVMH and Prada two 2012 semi-annual report, can be found the only Prada comply with the above theory.This is the flagship and leader of the luxury goods industry, brand maintenance need to invest a lot of expenses, including advertising operations, the opening of the flagship store, channel integration, such a large amount of re-investment (reinvestment) this year, partially offset by operating profit (EBIT ), LVMH's operating profit growth is less than the growth rate of sales revenue, operating leverage in LVMH body is not obvious, DOL <1.Brand maintenance and reinvestment also many mature luxury goods companies face challenges, such as the the Burberry and Richemont11 years have experienced a more moderate operating profit growth.The Prada compared with LVMH, the real company operations since 1978, while the company's stock was listed last year, prior to the listing of the company's business had better carding the brand maintenance requirements are not high, DOL>