Slow and Steady Is H.Stern's Winning Formula

Roberto Stern, the president and chief designer of H. Stern Jewelers, is unimpressed by companies that are opening stores at a fast pace in order to expand. The H. Stern chain operates 160 fine jewelry stores in 15 countries, with 80 of the branches in Brazil, where the company was founded, and 36 in Israel. In 2004, the chain plans to open just two more stores: a third branch in Hamburg, Germany, and another store in Paris.

"We have no plans for opening five new branches a year," said Stern during a recent whistle-stop visit to Israel. "One doesn't have to open new stores to grow anyway. One can improve the operations of the existing stores and increase sales by 10-15 percent."

H. Stern is the largest jewelry store chain in both Israel and Brazil, but has only a minor presence in Europe and the United States. Stern admits that this situation is not satisfactory. "In a large country like Germany three sales points are too few," he says. The company is hoping to strengthen its position in Europe in the next few years and to build an established and recognized international brand.

Setting up a jewelry store in a European capital is an expensive undertaking, so H. Stern, as a private company, has chosen to set up mini-stores inside prestigious department stores such as Harrods in London and Printemps in Paris. "We are examining the possibility of opening 4 to 10 sales points in stores in 2004," Stern says.

Nevertheless, Stern notes that the H. Stern brand is recognized worldwide despite its absence from major cities. "People love our brand and recognize it throughout the world, among other reasons, because we maintain uniformity." Duty free H. Stern stores at airports also help create broad recognition of the brand, Stern says.

Over the years other international fashion and jewelry chains have expanded their brands, launching new products such as scarves, bags and perfumes, in order to boost sales. Stern, however, has stuck with jewelry and watches.

"Today everyone is expanding brands," says Stern, "but we feel that we have a lot more to do in the areas in which we specialize before we stretch our brand. I believe in focusing - the company has to do what it knows best."

Close to one quarter of H. Stern's stores are in Israel and the local chain, under the general management of Israel Kurt, is ranked second in the world for total company sales. H. Stern entered Israel in the 1960s, opening its first store at Ben Gurion Airport in 1963 when then finance minister Pinhas Sapir wanted to promote the investments of this Jewish family from Brazil. Sapir gave company founder Hans Stern a hand-written permit, penned on a paper napkin, to open a duty free store at the airport. Within a few months another store opened at the Hilton hotel in Tel Aviv.

Up until 1996 tourists were responsible for 97 percent of the chain's sales in Israel, with most of its branches in hotels or at the airport. But that year, the chain began promoting local activity and opened some outlets in malls, including the Ramat Aviv Mall, the Azrieli Mall in Tel Aviv and the Grand Canyon Mall in Haifa. H. Stern even had a store in the Red Sea Mall in Eilat, but closed that branch after deciding that the mall's clientele did not suit the brand's character. Along with opening branches in malls, H. Stern began advertising in newspapers, with the aim of building an image as a fine jewelry brand in Israel.

The decision to turn to the Israeli public turned out to be a wise move as foreign tourism dropped. Today Israeli customers provide 70 percent of H.Stern Israel's revenues.

H. Stern Israel's annual advertising budget totals $1.5 million - the same as that of H. Stern in the U.S. The Israeli chain has 200 employees, 40,000 repeat customers, and average per customer sales of $1,000.

When the company opened mall branches in 1996, it also expanded its existing stores and redesigned them. The stores were enlarged to 100-150 square meters and were designed as galleries, with the aim of providing a sense of space and displaying the jewelry as works of art. Recently the company opened an outlet at the Arena mall at the Herzliya marina, with a reported investment of NIS 1.5 million.

H. Stern was founded by Hans Stern in Brazil in 1945 as a purchaser, polisher and reseller of precious stones. Today the company is managed by his eldest son, Roberto, who was appointed company president last year. He is responsible for the changes instituted in recent years to adapt the company to the current market. Hans, now over 80, continues to come to the company's offices and express his opinion, sometimes quite bluntly, but he gives his son a free hand.

Roberto, 44, began to spearhead the stylistic changes in 1997, which were expressed in the more modern design of jewelry, and in changes in marketing and advertising methods. Roberto is responsible for redesigning the company's logo, which for 55 years was written in Gothic letters. He also changed the style of the catalogs, recruited leading fashion photographers, and is the signatory of the ONE collection, launched by H. Stern in 2002 as a young jewelry line designed to attract women with lower budgets.

Stern is not worried by Israel's current economic situation. Growing up in Brazil he got used to economic revolutions. "The difficult situation cannot continue forever," he says, explaining that this line of thinking helps the company maximize business opportunities. "When Argentina went bankrupt we opened a store in the Plaza hotel in downtown Buenos Aires," he recalls. "Everyone thought we were crazy, but my father said, `Have you ever heard of a country disappearing?' We took advantage of the economic situation in Argentina to rent space at low prices."

Stern's jewelry combines elements from Brazilian culture with contemporary art. Stern says that in order not to lose long-time customers, the company is trying to freshen and renew its image while preserving the past.

Stern closely follows the impact his changes make. "There is always the risk of being too fashionable," he says. "It is important to create pieces whose beauty will last for many years, because fashion is naturally a passing thing. We are jewelry designers who make fashions, not fashion designers who make jewelry."