Swiss franc rally drives shoppers abroad

TIENGEN, Germany (Reuters Life!) - Nearly every day Uwe Zimmermann drives his dark-green convertible festooned with a Swiss flag from his house in the canton of Aargau across the border to Germany to shop for groceries.

"Why should I get cheated on prices?" he said, wearing shorts and a t-shirt as he stood in a parking lot, squinting into the sun. "I earn a good living, I live well, but we've all got to see how we make ends meet."

Zimmermann is not alone.

A 10 percent rally in the Swiss franc against the euro in the first six months of the year is encouraging shoppers across Switzerland to go abroad, exporters to warn profits will sink, and tourists to find cheaper destinations.

Overnight hotel stays are expected to drop five percent among tourists from the euro zone this summer, consultancy BAK Basel said.

Although they may share a language, Germans and Swiss do not share the same shopping traits: Germans are generally regarded in Switzerland as frugal frequenters of discount shops such, while the Swiss traditionally spend on quality.

But now, despite the robust economic recovery and comparatively low unemployment, newspapers abound with bargain-hunting tips as Swiss prices soar above those in neighbouring countries.

Some Swiss are even said to return from Germany with their purchases stuffed in bags from pricier Swiss stores, to prevent the neighbours from thinking they are unpatriotic.

"There's winners -- the consumers, who realise it's worth it to cross the boarder, there's companies who benefit because they realise that they source products in Europe it's gotten cheaper," said Jan-Egbert Sturm, director of the KOF economic Institute. "Conversely, the companies that trade and export in euros are getting hit."

Switzerland weathered the economic crisis much better than other countries in Europe. It is expected to post healthy growth this year and public debts are well below those of most of its neighbours. Consequently, the Swiss franc is strong.

When the Swiss cross the border to shop, they take advantage of a favourable exchange rate currently around 1.37 francs per euro and can claim back from German authorities a value-added tax of 19 percent. Swiss customs, however, assesses duty on purchases exceeding 300 Swiss francs.

"We still save maybe a quarter," said homemaker Anna Maurer, also from the canton of Aargau.

The number of people stepping forward with goods to declare rose 10 percent in the first six months of the year, according to Swiss border guard authorities in Basel, indicative of the rise in so-called "shopping tourists."

Statistics on people caught cheating are not available.

FLOURISHING BUSINESS

German vendors are trying to lure in business by helping Swiss clients get a handle on bureaucracy.

A car dealership in Tiengen selling Skodas, popular in Switzerland, has the paperwork on hand to clear cars through Swiss customs, and does not put the dealership's sticker on cars, as Swiss clients don't like to show they bought it abroad.

Manager Erich Waser said business from Switzerland has picked up in recent months: "The 10-15 percent change in the exchange rate is what's making the difference."

Coop, Switzerland's second-largest supermarket chain, has responded to the stronger franc by cutting prices on more than 150 products, from beer to baguettes and frozen fish.

A spokeswoman did not say whether that was also a ploy to keep shoppers from travelling abroad. A Coop study shows the shopping tourists bought nearly 2 billion francs of goods last year.

The franc, which investors regard as a safe-haven, has risen against the euro due to market jitters about Greece, and in June the central bank, which had been keeping a lid on the currency, dropped its pledge to intervene, prompting it to peak at 1.307 francs per euro on July 1.

So far exports have remained strong, in defiance of the currency, but economists and the machine and electrical industry group Swissmem have warned of the negative impact of a rising franc.

"It will be a while before the consequences of such an appreciation are felt," Sturm said.

"Many companies had fixed their prices earlier on, had hedged their forex exposure, but sooner or later they will have to cover these risks anew and that will change costs," he said.

But the drop in exports may be limited. Because Swiss goods are favoured for their quality, economists say price elasticity among exports is relatively low. A 1 percent change in price might only lower demand by half a percent.

In the Medieval town of Koblenz, on Lake Constance, business is also flourishing for Mandy Klein, who runs a service allowing Swiss clients to order items online to her house in Germany and then pick them up for a fee, avoiding high postage costs.

"It's been really good," Klein said. "Word of mouth is working excellently."