Strong franc hurts Swiss sales in the US

Image Caption: Michael Haene imports with his brother Cliff Swiss products for their shop in Washington (swissinfo)by Marie-Christine Bonzom in Washington, swissinfo.ch

The situation has become so difficult for some distributors that they have reduced their “Made in Switzerland” selection rather than have expensive products gathering dust on shelves.

“Small and medium-sized businesses which import 100 per cent Swiss-made articles with high production costs such as cheese or chocolate have suffered the most from the exchange rate,” said François Schmidt, the commercial attaché at the Swiss embassy in Washington.
He added that there were no official figures so far, but business owners and managers were repeating the same thing everywhere. “Even bigger companies are starting to feel the effects of the strong franc.”
For Dominik Schieweck, owner of the “Schoggi” chocolate store and website in San Francisco, the weak dollar has made his situation extremely difficult despite an 80 per cent increase in sales over last year.
“The prices of my suppliers have been going up, up, up and I’ve had to react and raise my prices. My business is barely profitable right now,” he told swissinfo.ch.
“We opened the shop before Christmas 2007, right before the recession hit. My whole business plan was built on the knowledge that I wouldn’t make money for the first four years, but I was not prepared for it being that bad.”

Bruce, manager of the Silicon Valley online store Swisschocolateoutlet.com, has decided to close the website. “Our sales are down since last year and the business is not very cost-effective,” he said.
“We’re redirecting clients to our other site, and what we’ve seen is that some would still buy Swiss chocolate as they place an order for Chinese fortune cookies.”
On the east coast in Washington, Cliff Haene, co-owner of the German Gourmet store and son of a Bernese immigrant, is not feeling the pinch as much as some of his colleagues.
“We’re located in the region of the US the least affected by the economic crisis and people here have more disposable income than elsewhere,” he told swissinfo.ch. “We also have [a big] enough mix of products from other countries.”
Haene expects to suffer from the strong franc in the autumn and during the end-of-year holidays, which start with Thanksgiving in late November. The impact is already being felt though.
“People compared [our prices] with domestic yogurt, so we had to remove Swiss yogurt from our shelves – now we only offer it by special order,” he explained.

Food items are not the only products taking a pounding. An Illinois-based website that sells as part of its range frying pans and saucepans made in canton Valais is having trouble shifting its merchandise.
“Our Swiss utensils are very high-end. They’ve always been expensive, but right now they’ve become very expensive and sell very slowly,” said the online store’s manager, who wished to remain anonymous.
Chantal Aeschbach-Powell, president of the US subsidiary of the Naef toy company in Virginia, says sales of the firm’s wooden objects to museum and decoration stores have been flat since last year.
“Because of the exchange rate we had to revise our pricing up about a year ago and we re-evaluate it every three to four months,” she told swissinfo.ch.
The company is considering slashing some models from its 75-product range and wants to target a wider market. Naef recently participated for the first time in the New York International Gift Fair.

Miami-based Ira Krieger, founder of the Swiss luxury watch brand of the same name, warns that companies working the higher end of the market should be cautious.
“We have to be very careful when we raise our prices,” he said. “To keep the Swiss made label, we can’t switch production to China or elsewhere, so our only room for manoeuvre is to revise prices. But once you raise prices, you can’t lower them or you’ll be out of whack with the market when the dollar is up again.”
Maintaining margins is also a dilemma for producers and resellers, Krieger concluded.
“As we raise prices, we lose customers, others change their behaviour and reduce purchases,” he told swissinfo.ch. “A client who might have bought three watches over three to four years might now only buy one.”

Marie-Christine Bonzom in Washington, swissinfo.ch
(Adapted from French by Scott Capper)

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Strong franc gnaws deeper into Swiss economy

Image Caption: The franc's clout is hitting domestic industries (Keystone)by Matthew Allen, swissinfo.ch

The value of the dollar sank below the franc some time ago, and there are no signs of the trend reversing with the Swiss economy performing so robustly compared to debt-laden European countries and the United States.

“It seems prophetic, and almost tragic, to say so now, but the Swiss economy has been the victim of its own success in surviving the financial crisis over the last couple of years,” Janwillen Ackett, chief economist at Julius Bär bank, told swissinfo.ch.
“Something dramatic has taken place since the start of the year and our outlook is now a more sober one. We will really feel the pain of the over-valued franc in the coming months.”
Acket has downgraded his predictions for Swiss gross domestic product (GDP) growth for this year to 1.4 per cent, compared to a 2.2 per cent forecast in January and 2.6 per cent made last year.

Joseph Jiminez, chief executive of Novartis warned on Tuesday that the drug maker would have to “reduce the total cost we have in Swiss francs” while referring to the damage caused by the strong currency.
Also on Tuesday cabinet ministers interrupted their holidays to discuss via teleconference the strong franc. However, no measures were taken.
This week, the franc recorded more gains against the euro – with one unit of the European currency costing SFr1.14 compared with SFr1.50 at the end of 2009. Many companies would go to the wall if the franc reaches parity with the euro, Peter Widmer, president of the Swiss export association, told the Blick newspaper in May.
“If that really happens then thousands of companies would face bankruptcy,” he said.
And it is not just engineering companies that face problems. The textiles industry has appealed to the government to provide bridging loans to stave off a looming crisis in that sector.
There are also reports of traditional, small cheese makers failing as exports melted by 3.5 per cent in the first quarter of this year. Imports of foreign cheeses rose by 7.4 per cent in the same period, according to the cheese marketing board.
Other milk products also face a currency squeeze. Milk products producer Emmi reported that a SFr100 million hole has been blown through its turnover in the last three years as a result of the strong franc.

Private bankers, thought to be the main beneficiaries of the strong franc as investors flock to Switzerland, insist that they are not as well off as believed because new assets are denominated in euros, while their cost base remains in francs.
The tourism sector has also suffered from the effects of the strong franc. The NZZ am Sonntag newspaper reported on Sunday that a thousand Swiss hotels were threatened with extinction as fewer tourists visited high price Switzerland.
The head of the Swiss tourist board, Jürg Schmid, appealed to the patriotism of Swiss holidaymakers in a SonntagsBlick article on Sunday, urging them to stay at home and spend their money in the domestic market.
Hansueli Loosli, chief executive of supermarket chain Coop, has also being banging the patriotic drum, accusing Swiss consumers that drive over the borders to buy cheaper euro products of costing homegrown retailers some SFr2 billion a year in lost sales.
On the other side of the coin, the Swiss price watchdog has leveled an accusing finger at retailers, saying they are doing too little to pass on the reduced cost of imports to consumers.
Swiss consumers typically pay some 20 to 30 per cent more than European counterparts for the same goods, but official statistics showed that the high street cost of goods and services imported from the euro-zone have hardly dropped despite being cheaper to buy with the Swiss franc.

Matthew Allen, swissinfo.ch

The Swiss franc is a so-called “safe haven” currency, which means that investors and speculators buy it when other currencies, including the euro and the dollar, are under pressure.
The franc has gained 25 per cent in value against the euro and the dollar over the past four years.
The Swiss National Bank has emphasised that it does not pursue an exchange rate target, but consistently bases its monetary policy on its legal mandate.
This mandate stipulates that “the SNB is required to ensure price stability, while taking due account of economic developments”.
Starting in March 2009 the SNB intervened in currency markets. But after pumping in 15 per cent of GDP in May 2010 to little effect as the Swiss franc surged during the first round of the Greek debt crisis, it dropped them in June 2010.
These forays led it to a loss of SFr21 billion last year, its biggest ever, and its chairman, Philipp Hildebrand, has faced calls to resign.

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