Seis Continentes / Spring 2002
By Larry Luxner
RIO DE JANEIRO -- In 1939, on the eve of World War II, a penniless German Jew named Hans Stern arrived in Brazil with his parents, with no clue as to how he'd make a living. Six years later, as the war was winding down, the enterprising teenager sold his prized accordion for $200 and used the money to start his own jewelry business.
Today, H. Stern Comercio e Indústria 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.
It's been a long road from Essen to Ipanema, the upscale Rio de Janeiro suburb where Stern's showroom is visited by over 120,000 tourists a year. Many of them would be surprised to learn how, over the course of half a century, this determined refugee became one of Brazil's most successful businessmen.
"After Krystallnacht [a violent Nazi uprising] in 1938, my father decided to leave Germany as quickly as possible," the 78-year-old Stern said during an interview in mid-November. "But it was difficult to get visas. I had an uncle living in Brazil who had come here in 1935. He was married to the sister of Roberto Burle Marx, the architect, and they got us visas. I came to Brazil with my parents and grandfather.
"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.
"First I worked as a broker, going to the hinterlands, getting stones on consignment. I ended up making some jewelry for friends, then customers. 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. In 1955, Stern opened his first non-Brazilian outlet in the Uruguayan capital of Montevideo. The following year, Rio de Janeiro's city fathers granted him the title of "Honorary Citizen."
Business boomed, and H. Stern began expanding to other South American countries, and eventually Europe, Israel and the United States. Along the way, the Rio-based company has introduced efficient and permanent research for raw materials, utilizing items of various origins and a variety of precious gemstones ranging from aquamarines and amethysts to tourmaline, topaz and tanzanite.
Stern says Brazil's most popular gemstone is the aquamarine, which is mined in the states of Minas Gerais, Espirito Santo and Bahia. Emeralds, meanwhile, are found in the states of Goiás and Bahia, while the rare imperial topaz is produced at only one mine in the world, near the colonial city of Ouro Prêto.
And although the country produces only 3-5% of the world's diamonds, the superior beauty and hardness of Brazilian diamonds places them among the world's most desired gemstones.
Stern's special designs for diamonds, Oriental stones, opaque stones and organic materials such as pearls, coral and ebony has given the pieces greater value. All pieces are accompanied by certificates based on criteria set by the Gemological Institute of America.
"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. "In Brazil alone, we are now in 18 cities; this helps to dilute our advertising costs. We have already become better known than any other jewelry company in Brazil."
At the moment, H. Stern's domestic operations employs 2,800 people, most of them at retail shops in Belo Horizonte, Brasília, Campinas, Curitiba, Fortaleza, Foz do Iguaçu, Manaus, Natal, Niterói, Pôrto Alegre, Recife, Ribeirão Prêto, Rio de Janeiro, Salvador, Santos and São Paulo.
Another 700 employees work at H. Stern's overseas operations, which include two outlets in Colombia (Bogotá and Cartagena); one in Buenos Aires, Argentina; two in Peru (Cuzco and Lima) and one in Caracas, Venezuela. His U.S. locations include Miami Beach, Houston and New York, where he has four stores -- one on Fifth Avenue at 51st Street, one at the Waldorf-Astoria and another two at JFK International Airport.
In addition, the H. Stern has four stores in the U.S. Virgin Islands, and one each in Mexico City, Paris and Lisbon. Stern is also opening two outlets in his native Germany -- one at Frankfurt Airport and the other in downtown Munich -- and is doing particularly well in Israel, where 150 employees in 30 stores from Jerusalem to Eilat have made him the country's No. 1 jewelry retailer.
"Amazingly enough, although our tourist business in Israel is down, of course, our local business is prospering," he said. "I don't know how to explain it. Before, we had no stores catering to Israelis. Now we have stores in three shopping malls -- two in Tel Aviv and one in Haifa."
Interestingly, wealthy Gulf Arabs -- oblivious to Stern's Jewish background even at the height of the Islamic world's economic boycott of Israel -- buy regularly from Stern.
"We had a time when Arabs were our best customers," he said. "We've been offered joint ventures in various Middle Eastern countries, but we've been so busy that we never got around to it."
Stern, a likeable grandfather who enjoys collecting stamps, swimming, playing his Hammond organ and listening to Bach, also 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.
The H. Stern Cultural Center, also on the building's third floor, holds a permanent exhibition of unusual specimens of rough crystals and precious stones, including the world's largest collection of tourmalines -- with more than 1,000 stones in a variety of colors, shapes and sizes.
Of course, the big thrill for tourists is actually buying something -- and since most of the 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.
"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," Stern told Seis Continentes. "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."
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 idea is, we are creating world collections whereby people recognize the design. It's not necessarily that the stones are so important. Though tourists come to Rio to buy something special, when they get home they want something that's appreciated not so much for the stones but for the design. For this we have consultants in the fashion industry. The key word is branding."
At the moment, H. Stern has a stock of 300,000 pieces. Some 20,000 new items are produced monthly, including the "Sapphire Collection" -- comprised of quartz watches in solid corundum cases, a synthetic material based on the same elements as natural sapphires. These watches run anywhere from $2,500 on up.
"We are intensively developing brands, creating special collections that we sell around the world at basically the same price. The only difference in price comes from taxes," he said. Regarding overall jewelry trends, Stern says "gold, diamonds and colored stones are coming up again, and big, chunky jewelry is going out of style. But this is all very relative. We have something for everybody."
Stern -- who personally doesn't wear any jewelry except his watch and occasionally cuff links -- 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 41-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 43 years -- helps out whenever possible. But Stern remains firmly in charge of the company.
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."
Nevertheless, Brazil's economic difficulties have taken their toll on the company.
A 1999 devaluation caused business to tumble by 30% as Brazilians saw their national currency, the real, lose almost half its value overnight. And in mid-2001 -- just as Brazil was recovering -- a severe energy crisis sparked by a shortage of hydroelectric power set the country back once again. Finally, a worldwide economic downtown sparked by the Sept. 11 terrorist attacks has sharply curtailed tourist arrivals to Brazil and further hurt the country's economic prospects.
Nevertheless, Stern says he admires President Fernando Henrique Cardoso, the man who ordered the devaluation and has tried to guide Brazil through its subsequent problems.
"I consider him the best president we've had in ages. People very easily forget the bad things that happened before, but I think he's on the right track," he said. "He has a tough time with the politicians, and with Congress. They do not put into practice the fiscal reforms that should be made, like restructuring social security and the tax system."
When it comes to Brazil's bleak tourism picture, Stern refuses to be pessimistic.
"We believe that because Brazilians aren't traveling so much after Sept. 11, this will help our business, because they'll be spending their money in Brazil instead of Miami or Europe," he said. "And since Americans and Europeans are no longer traveling to the Middle East, we expect more of them will come to South America."
He adds: "We still have to fight against the sacoleiras, the women and men who go around with bags and try to sell jewelry to their friends without paying taxes. About 70% of jewelry sales in Brazil are made that way."
One thing Stern never discloses is how much is own company is selling, "because we don't want our competitors to know" such details. Even so, H. Stern's annual revenues are believed to be in the hundreds of millions of dollars, and 5% of those revenues are spent on advertising, catalogs, marketing and direct-mail promotions.
Is the company profitable? "No," says the boss. "We're breaking even. I'm happy to stay where we were before. This is not easy, considering the recession. We are amazed that the Brazilian market is holding its own, in spite of the fact that taxes are very high, almost 40% of the product price for Brazilians."
Indeed, business must not be too bad, because H. Stern just inaugurated one of its biggest stores in Brazil at São Paulo's Iguatemi Shopping Mall. The company is also expanding the size of its Ipanema showroom to accommodate more jewelry collections.
Regarding his U.S. business, Stern explains that "In the last 10 years, we have made marginal profits, but we spent a lot of money on new store fixtures," including several million dollars on renovating the H. Stern outlet on Fifth Avenue in New York. "We're also considering opening a store in Soho, but it's still not decided."
Another thing Stern is considering is taking his multinational company public.
"We thought about it before the devaluation, but it takes time to prepare," he told us. "We are trying to restructure the company so that we can eventually go public. We would like to raise capital and expand, becoming stronger in markets where we already are, and entering markets where we're not."
But Stern says outsiders will never control more than 49% of his company. "The family won't let go," he insists, "not as long as I'm around."