Travel Markets Insider / April 2005
By Larry Luxner
RIO DE JANEIRO — H. Stern, Brazil's largest retail jewelry chain, has begun franchising its famous name to other jewelry wholesalers as it closes marginal stores and expands into new markets throughout Latin America, Europe and the Middle East.
The chain's 82-year-old founder and chairman, Hans Stern, fled Nazi Germany in 1939, arriving practically penniless in Rio de Janeiro with his parents. In 1945, he sold his prized accordion for $200, using the money to buy raw gemstones and turn them into jewelry for wealthy cruise-ship tourists.
Business prospered, but Stern's big break didn't come until 1951, when he received an order from Nicaraguan dictator Anastasio Somoza for a $20,000 aquamarine necklace. In 1955, Stern opened his first non-Brazilian outlet in the Uruguayan capital of Montevideo.
Today, H. Stern is Latin America's — and Israel's — leading retailer of precious stones, with 160 points of sale in airports, luxury hotels and shopping malls around the world. Half of those outlets are located in Brazil, where a healthy domestic economy and booming tourism has translated into strong sales for the Rio-based conglomerate.
"Last year, business was better than the year before. The economy is doing very well. We have an export boom, balance of payments are favorable and so is our trade balance," Stern told Travel Markets Insider. "People are buying more jewelry these days — not much more — but at least sales haven't gone down."
Stern said jewelry sales to tourists visiting Brazil jumped by 40% in 2004, while domestic sales rose by a modest 5%. He praised Brazilian President Luiz Inacio "Lula" da Silva, who initially was opposed by the business sector because of his socialist tendencies.
"I hope Lula sticks to his policies, which are very sound," he said. "Although he's a leftist, his economic policies are conservative. The concern now is that he'll give into pressure from the real leftists."
Stern never discusses revenues, though Forbes estimates annual sales at between $300 million and $500 million. The Wall Street Journal was more conservative, putting sales at around $150 million. Asked about the discrepancy, Stern simply said "people like to throw numbers around."
At the moment, H. Stern's domestic operations employs 3,500 people, 2,800 of them in Brazil. His biggest outlet is the flagship store in Ipanema, though the one at São Paulo's sprawling Iguatemi Shopping Mall generates the most sales volume.
"We're also in Brasília, Belo Horizonte, Fortaleza, Curitiba, Porto Alegre, Recife, Salvador, Manaus and Goiana, and we just opened a store in Mato Grosso," said Stern, who makes a point of visiting all his stores at least once a year.
Another 700 employees work at H. Stern's overseas operations, which include four outlets in New York alone — one at Fifth Avenue at 51st Street, one at the Waldorf-Astoria and another two at JFK International Airport. Stores are also located in Lima and Cuzco [Peru]; Bogotá, Buenos Aires and the U.S. Virgin Islands.
"St. Thomas gets a lot of cruise ships, so we're there. We were also in St. Maarten, but we left because you cannot bring people in from abroad, and it's very difficult to train the locals," he said. "Venezuela is a difficult country, and the store did not perform as we expected, so we got out of Caracas, too."
In Europe, H. Stern runs its own stores in Paris, Munich and Frankfurt; a store in Hamburg will open within six months. Franchisees for H. Stern operate in Greece, Portugal and now Kazakhstan. Negotiations are underway to launch a joint venture in Cannes.
H. Stern's most important overseas operation, however, is in Israel, where the jewelry retailer has 30 stores from Haifa in the north to Eilat in the south.
Israel Kurt, manager of H. Stern's operations in Israel, said the company opened its first duty-free shops there in 1964, with outlets at the Tel Aviv Hilton and Ben-Gurion International Airport.
"If you visit Israel now, you cannot ignore us," he said. "We used to depend only on tourism. Now we have tourism and local business, and we live from the local business now and are waiting for the tourists to come."
Kurt said H. Stern's largest shop in Israel is a 150-sq-meter outlet at the Ramat Aviv Mall, just north of Tel Aviv. The chain also runs six sales points in the new terminal at Ben-Gurion Airport. In Israel, H. Stern employs around 300 people.
"Israelis are in a good mood and they're buying more jewelry, especially diamonds. They also like colored stones very much. Everything we sell in Israel is locally made."
In addition to his 30 stores in Israel, H. Stern also has two shops in Dubai — operating under the Azal name — with an outlet in Beirut possibly in the works.
"We are a Brazilian company. Of course they know we're Jewish and that we're big in Israel, but they don't care. Business is business," said Kurt. He added that [PLO spokeswoman] "Hanan Ashrawi is one of our best customers." Another valued client is top Palestinian negotiator Nabil Shaath, who recently bought a wedding ring from H. Stern.
One place you won't find an H. Stern franchise is Ciudad del Este, Paraguay, which the boss says "is like the Wild West" with its congested streets, fake Rolex watches and adulterated liquor.
"The type of people who go there are usually Brazilians smuggling goods back into Brazil; that's 95% of the business," Stern explained. "Duty-free is really a catchword, because if you sell something locally, it's not duty-free but tax-free. Duty-free means bringing in merchandise from abroad, like cigarettes, perfumes, liquor and watches, and not paying duties. Our products are all made in Brazil. We don't sell any foreign goods."
On the other hand, tourists who come to Brazil are exempted from the IVA (value-added tax) and the IPI (luxury tax), which keeps jewelry prices relatively low.
Besides the big factory, headquarters and showroom in Rio's Ipanema district, H. Stern outlets can also be found in shopping malls that cater to Brazilians. They're also a fixture at every major airport in Brazil — including Rio de Janeiro, São Paulo, Foz do Iguaçu and Manaus — but Stern does not consider such stores very important to his overall strategy.
"They actually lose money, because of the huge expenses of running them," he said. "You have to pay a big percentage to the airport authority, and you have to work in three shifts. There aren't that many flights in some of these airports like Salvador and Porto Alegre. It's really more a matter of image."
Stern takes special pride in showing friends around his Ipanema cutting and polishing factory, as well as the H. Stern Cultural Center, which is almost an obligatory ritual on the itinerary of every tourist who comes to Rio.
In fact, some 10,000 visitors drop by the 17-story headquarters every month, many of them on hotel-organized bus tours. The total area in two buildings comes to 14,000 square meters, of which 5,700 square meters are occupied by workshops for cutting and goldsmith work, creation of jewelry, quality control, administration and a complete gemological laboratory -- the only one in Brazil belonging to a private company -- where tests are carried out to identify and classify gems.
On the third floor of the Ipanema headquarters, visitors may take a 40-step gemological tour, watching through a series of windows while while wearing headphones switched to one of 18 languages including Japanese, Korean, Turkish, Hebrew and Arabic. The 12-minute narrative tour -- accompanied by "The Girl from Ipanema" playing softly in the background -- shows visitors how a jewel is made, beginning with cutting the rough stone, designing, goldsmith work, selection and polishing a gem.
For tourists, one of the biggest thrills is buying something Brazilian — and since most of H. Stern's gems are mined locally, prices are often 30% less than what they'd be back home. Those who end up making purchases at H. Stern spend an average of $1,200.
Even so, tourists represent only 20% of H. Stern's total sales. The remaining 80% comes from the local Brazilian market, which Stern says has grown tremendously in recent years, thanks to a decision by the company to pay closer attention to global fashion trends. The exception is Rio, where half of all revenues come from tourists. Some 25% of those who visit the Ipanema factory and showroom end up buying something, said Stern.
"During Carnival, we get about 10,000 people a month in Rio," he said.
Day-to-day operations are now headed by Stern's 45-year-old son Roberto, along with help from Roberto's brother, Ronaldo, who is based in New York. A third son, Ricardo, recently left the company to go into the restaurant business, while the fourth son, Rafael, works in telecommunications. Stern's wife, Ruth — to whom he's been married for 47 years — helps out whenever possible. But Stern remains firmly in charge of the company.
He said a plan to take H. Stern public in order to raise capital for expansion "has been shelved for the time being."