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A Gem of a Company: Brazil's H. Stern
Latin CEO / January 2000

By Larry Luxner

In 1939, on the eve of World War II, a penniless German Jewish teenager named Hans Stern arrived in Brazil with his parents, without a clue as to how he'd make a living.Six years later, as the war was winding down, the enterprising refugee inaugurated a jewelry business with $200 in savings.

Today, H. Stern Comercio e Industria S.A. is Latin America's leading jewelry conglomerate, with 180 stores in luxury hotels, shopping malls and airports from Belo Horizonte to Bogotá. Hardly a five-star property opens in some Latin capital, it seems, without the obligatory H. Stern outlet and its glittering display of watches, necklaces, rings and bracelets in the hotel lobby.

"During the war, I had to work. We came here with nothing, so I got a job as a typist in a company exporting and cutting gems. This is how I learned the business," recalled Stern, who speaks Portuguese, English, Spanish, French and a little Yiddish in addition to German. "At that time, the export business was all in the hands of non-Jewish Poles. This is when I learned my only sentence in Polish, which translates as 'we don't need any calibrated aquamarines.'"

The young jeweler's big break came in 1951, when he received an order from Nicaraguan dictator Anastasio Somoza for a $20,000 aquamarine necklace. Since then, H. Stern has opened stores in every major Brazilian city, not to mention stores in the U.S. Virgin Islands, 30 shops in Israel and even a few in his native Germany.

"I believe that Brazil, being so rich in gems, should be as known to the world for gemstones as France is for perfumes, as Scotland is for whiskey," says Stern, who was recently interviewed by Latin CEO at his summer home in Teresópolis, a two-hour ride over the mountains from company headquarters in Rio de Janeiro. "The reason we opened stores in all Latin American capitals is so tourists become familiar with our stones and our name. In Brazil alone, we are now in 18 cities; this helps to dilute our advertising costs. We have become better known than any other jewelry company in Brazil."

Stern, a likeable 77-year-old who enjoys collecting stamps, playing his Hammond organ and listening to Bach, still works five days a week, from 8:30 a.m. to 7 p.m., and half a day on Saturdays.

"Being semi-retired means coming into the office half an hour late," he jokes. "I'm on the road two or three months a year, visiting our stores. Until a few years ago, three of my four top executives were of European Jewish descent. Over time, they've been replaced by local executives. Now, of the old people, I'm the only one left."

Day-to-day operations are now being headed by Stern's 40-year-old son Roberto, along with help from Roberto's two brothers, Ricardo and Ronaldo. The fourth sibling, Rafael, recently graduated college and has begun an Internet venture. Stern's wife, Ruth -- to whom he's been married for 41 years -- also helps out whenever possible. But Stern remains founder and president of the company

At the moment, H. Stern employs 3,500 people -- about 2,800 of them in Brazil -- in the business of producing jewelry from gold, diamonds and a dazzling array of local gemstones ranging from aquamarines and amethysts to tourmaline, topaz and tanzanite. A tour of the H. Stern museum and cutting and polishing factory in Ipanema is almost an obligatory ritual on the itinerary of every visitor to Rio.

In fact, some 10,000 tourists drop by the 15-story headquarters building every month. Of those who ended up buying something in 1998, the average expenditure came to $1,300.

"We are not trying to sell diamonds to tourists, because they can buy that anywhere else in the world. We push local gems like aquamarines, emeralds and citrines. We have sold to Kissinger, Shultz, John F. Kennedy and the Shah of Iran. Practically every big shot who's come to South America has bought from us," Stern told Latin CEO. "But we don't only cater to the upper crust. Times have changed. It's now probably less than $1,300 per tourist, because traveling has become cheaper, and you get more quantity than quality."

Even so, tourists represent only 20% of H. Stern's total sales. The remaining 80% come from the domestic 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.

Stern says business was humming along nicely until 1999, when the company's Brazilian revenues suddenly tumbled 30% due to the currency devaluation ordered a year ago by President Fernando Henrique Cardoso.

Despite that, Stern says he admires FHC.

"I consider him the best president we've had in ages. People very easily forget the bad things that happened before. I think he's on the right track," he said. "The good part of the devaluation is, it will enable Brazil to export more in the medium term because the country becomes more competitive. The bad part is, it's reducing people's purchasing power. But I see a good future for Brazil if the government gets through Congress the basic reforms that have to be made."

Asked to explain his own success story, the jewelry magnate attributed it to "a combination of luck, grabbing the opportunity and ethics."

"You have to be 101% honest with your employees and your suppliers, and think of the medium and long term, not only of making a fast buck," he said. "In our business, where you depend on people trusting you, to give fair value is absolutely essential. If you keep yourself and your employees to a high ethical standard, it pays off. We have an 800 number where people can record their complaints. I personally get a copy of each and every complaint. Sometimes you have to bend over backwards to satisfy your customers."

Stern, who never discusses annual sales or earnings because "we don't want our competitors to know" such details, did say he and his sons may take the company public.

"We thought about it before the devaluation," he told us. "But it takes time to prepare. The idea is to become stronger in markets where we already are, and go where we're not."

At least two years will pass before H. Stern returns to normal sales levels, says the company's founder. "Our target is to increase sales by 10% this year. If it's more than 10%, we'll be very happy."

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