Finding the right growth prescription

A department store of Lushang Group in Jinan. Lushang Group opened its e-commerce platform in 2010, and its offline business will focus on enhanced customer experiences by adding physical stores in places where customers can eat, play as well as buy things. Provided to China Daily

Diversification helps Lushang Group offset slowdown, take the path ofsustainable growth

Ling Peixue, general manager of Lushang Group, is different from most of the other businessmen one would chance upon in Shandong province. Armed with sharp market intellect and a green agenda, Ling said that the spirits, embodied in the mountain and water, have propelled his enterprise to greater heights.

Citing an example of the rich heritage his company has drawn upon, the name Lushang Group comes from the Chinese word lu shang, which means business people from Shandong.

"Water is soft and weak, but for attacking things that are firm and strong there is nothing that can take the precedence of water," Ling said, adding that a businessman needs to constantly update his strategies to adjust to the market changes, much like water changing its shape to fit into containers.

Transformation has always been a key word in Ling's life. Lushang Group started operations as a State-owned conglomerate in 1992 amid a series of State-owned assets transformation and consolidation. Its businesses cover sectors like retail, real estate, biopharmaceuticals, hotels and tourism, media, education and finance and provide employment to over 200,000 people. Ling was appointed general manager of Lushang Group early last year.

Thanks to the key profit engines of retail, real estate and pharmaceuticals, Lushang Group's revenue reached 74.5 billion yuan ($11.95 billion) last year, a year-on-year growth of 20.34 percent. The group's retail brand Inzone was ranked seventh among the top 100 Chinese chain retailers in terms of revenue last year, in a ranking published by the China Chain Store & Franchise Association in April.

Most of China's traditional State-owned retailers have been going through a tough period due to stiff competition from foreign and Chinese private retailers and e-commerce companies.

Ling, however, said that his group has managed to buck the general trend by clocking double-digit revenue growth during the first four months of this year, though he admitted that the growth pace has slowed.

"The growth decline is a clear indicator that we have to change our development model," said Ling. The group has already made a start by upgrading its online shopping platform and integrating it with its offline or physical business.

"The joke that sellers in some stores outnumber buyers is an indication that online shopping is taking away many buyers," said Ling.

Statistics released by the China Chain Store & Franchise Association show that 67 of the top 100 chain retailers had set up online shopping platforms by the end of last year. Lushang Group opened its e-commerce platform in 2010, but the revenue generated from online shopping accounted for just 0.5 percent of the group's total revenue last year.

"Although online shopping is not the fundamental reason for the declining growth of retail industry, the market trends are driving us to put more efforts on it," said Ling.

To find an efficient online commercial model, the group has recently teamed up with Nanyang Technological University and Media Development Authority of Singapore.

"We plan to develop our electronic business into an online complex that encompasses all of our offline business, such as retail, hotel, tourism, automobile and financial services. Our offline business will also focus on enhanced customer experiences by adding physical stores in places where customers can eat, play as well as buy things," said Ling.

To serve the online and offline business, the group is building a warehouse with fully computerized tracking systems and the latest retail technology.

This is not the first time that Ling has teamed up with world famous organizations to elevate his business to international standards.

Ling is also chairman of Shandong Freda Pharmaceutical Group Co Ltd, a company established in 1993 by Ling and owned by Lushang Group. The pharmaceutical company has become China's largest eye drug producer by sales.

In 1994, Shandong Freda joined hands with Thailand-based Chia Tai Group to produce sodium hyaluronate using Ling's self-developed biotechnology.

Supported by the funds from Chia Tai Group, Ling developed several sodium hyaluronate-based eye medicines that boosted the market share for the joint venture - Shandong Chia Tai Freda Pharmaceutical Group, predecessor of the current Shandong Bausch & Lomb Freda Pharmaceutical Group.

Before establishing Shandong Freda, Ling spent 13 years in the pharmacy trade. He obtained a bachelor's degree in pharmacy in 1983 and a master's degree in 1986.

He is also an MBA from Fordham University. In 2007, Ling founded the Shandong Academy of Pharmacy to focus on research and development of pharmaceutical products.

Besides cooperating with overseas heavyweights in the home market, Ling also focuses on developing the overseas market.

The group is planning to build a wine trading entity in Bordeaux region of France where it purchased the Chateau de Gugat from a Swiss owner in 2012 in the Blasimon region near Bordeaux.

"Customers' demand for overseas products is increasing, so we have to enrich our product profile," said Ling.

The wine trading entity will enable the group to not only sell the group's own wines but also gain a much wider access to wines from neighboring estates and other wine brokers, he said.

The group is also adjusting strategies to cope with the sluggish real-estate market, which is still a major sector for Lushang.

"We are developing real estate for the aged," said Ling who predicts China may see a boom in industries related to senior care services in five years. China is seeing fast aging due to family planning policies, accelerated urbanization and decreasing fertility rates.

In 2025, people aged 60 or above will account for more than 20 percent of the total in China, with about 12 percent aged 65 or above, according to the National Bureau of Statistics.

Senior citizens aged 60 or above are set to account for 22.3 percent in Shandong province in 2020, a coastal province with the second largest population in China.

"Differences will be made in our senior care services," said Ling. "For those who are healthy, we focus on organizing travel as well as training classes on photography or dance to enrich their lives. For those who are physically challenged, we emphasize on one-to-one care."

Ling said Lushang has an advantage in developing senior care services and property because the group has its own resources for retail, pharmaceuticals, finance, tourism, education, hotel and real estate development.