The Swiss Franc Soars, and Tourism Suffers

The Swiss franc's 11 percent appreciation against the euro this year is forcing Urs Boehler, who runs Zurich's Les Millionaires jewelry store, to sell cheaper wares.

Boehler's shop is on Bahnhofstrasse, the city's ritziest shopping street. Even for his customers, prices have risen almost out of reach as international investors seeking safety pile into Swiss francs. Boehler's fanciest jewelry retails for around 150,000 Swiss francs. Three years ago, before the global financial crisis, these would have cost an American shopper $127,000. Today, with the Swiss franc at record strength against the greenback, that's more like $156,000. For the upcoming holidays, Boehler plans to sell watches for as little as 3,000 francs, a mere $3,100. "We wouldn't have taken this decision if we hadn't had to," Boehler says. The franc is "hurting us enormously. It's cutting our air off."

Switzerland is struggling to attract more visitors. It lost about 2 percent of its usual hotel visitors from Germany during the first half of the summer, according to the BAK Basel Economics research institute. American tourists are clutching their wallets. "We were warned that everything is very expensive," says Rudi Vaff, a 65-year-old visitor from Phoenix. "Food and hotel prices are out of this world." Swiss inflation is not a problem: The average cost of a room at a four-star hotel in Zurich rose just 0.4 percent in June, to 290.23 francs, from a year earlier, according to the Zurich Hotels Assn. Converted to euros, however, that's up about 16 percent.

Cheap meals aren't so cheap. "I spent 13 francs [about $13.50] on a McDonald's (MCD) meal and I didn't even get a refill," says Julio Cesar Ponce, a 30-year-old computer science researcher from Aguascalientes, Mexico. In the U.S., the meal would have cost about half that, he says.

Linda Hofer heads Swatch Group's namesake store at one end of Bahnhofstrasse. Farther up the street stores sell gilt-edged brands such as Patek Philippe, Audemars Piguet, and Rolex. "People come first thing in the morning," she says. "Then they walk up the street and all they see are higher prices before they finally come back to us." Swatch, based in Biel/Bienne, Switzerland, makes everything from budget plastic watches to pricey Omega and Breguet timepieces. It reported in August that first-half profit rose 55 percent, to 462 million francs, as revenue hit a record.

Vaff and Rita Rossi, his companion, planned to limit their purchases on Bahn- hofstrasse as they window-shopped at Chanel and Prada and Hermès. Says Rossi, 56: "You take a closer look and say, wait, I can get that cheaper at home."

The bottom line: Investors have found safety in the Swiss franc. As the franc has climbed higher, Swiss retailers and hoteliers have suffered.

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