Is Gstaad recession proof?
By Phil Linder and Diana Oehrli
Unlike in some European countries and the US, the economy of Gstaad-Saanenland is showing very few signs of a slowdown. With one exception, 25 interviews with local businesses concluded that there is no recession to be felt. “In Saanenland, we are seeing anything but a recession,” said Fritz Wampfler, head of the Saanen economic commission. “I don’t think we will see a change in the coming years. Our building firms are working at capacity. We are talking about an unprecedented, overheated economy, which has an impact on taxes, building, and employment.” The evidence of a boom is clear. Everywhere in Saanenland, from Lauenen to Saanen, cranes tower over building sites, while large trucks carrying dirt and cement compete for space on narrow country roads. All of the contractors and architects we spoke to said the same thing: building costs are rising, something that does not seem to be influencing demand. Some, however, predicted that things could change, with one contractor speculating that the building market had reached a peak. All of the real estate sales and rental agents concurred that demand is continuing to outpace supply, a phenomenon stretching to the neighboring village of Rougemont.
“Here, the market is still strong,” said Louis Martin of CF Immobilier, Rougemont. A real estate agent in Saanenland said that demand is still strong, but that this still being August, it was too early to tell. Bookings for the coming winter season would give a clearer picture of the situation than can be deduced now.
News from the US and Europe has been dire. Declining house prices and the subprime mortgage crisis have both had a negative effect on the 2008 performance of the US economy. Although the US economy grew by 1% in the first quarter, meaning the US does not meet the widely accepted definition of a recession, several US states have been declared by Moody’s to be in a recession. In Europe, countries, such as the United Kingdom, Ireland, Denmark, Italy and Spain, are showing economic slowdowns and increasing inflation rates. Many believe recessions to be contagious, leading us to the question: is Gstaad recession proof?
“One has to understand that, economically, Saanenland is operating in a kind of microcosm,” said Toni Knecht, head of private banking at Saanen Bank. A July 2008 Credit Suisse economic research report entitled “Swiss Issues: No recession in sight” leads one to believe that the microcosm might actually be Switzerland as a whole. “Swiss industry has adopted a gentler pace. A recession, however, is not in the cards.” High employment, good retail numbers, strong consumer consumption and record-breaking hotel business were the highlights of the report. Even high fuel prices were not enough to change consumer habits. “Although the recent tumultuous growth in automobile sales slowed somewhat in the first quarter of 2008, the growth rate of 5.8% is still solid given the sharp rise in fuel prices,” the report continues. This appears to be what we are seeing here locally as well.
Local automobile dealers are not complaining, even with slowing used (large engine) car sales. Luxury car sales are not experiencing a significant slowdown, according to local dealers. “The rising cost of gasoline has become an issue,” said Andreas Knecht, owner of the Subaru dealership and Shell gas station in Saanen. “More people are talking about high gas prices and a possible recession, but from my point of view, things haven’t changed enormously. We are not selling fewer cars.” Knecht says he sells mostly Subarus, which he says are easy to sell in this area. Knecht said that both the local and the guest market segments increasingly talk about fuel efficiency and look more at energy stickers than they were before.
Also, hotels are noting no significant changes this year, except for a decline in American guests due to the drop in the value of the US dollar. A recent Economist article on travel and tourism stated: “as American families plan their holidays, many will be worrying about the frailty of their country’s economy, the rising cost of petrol and – for those venturing outside of the US–the weakness of the dollar.”
“We did feel a difference in June and July, as many Americans who usually attend the Roy Emerson Tennis Weeks cancelled their stay because of the weak dollar,” said Andrea Scherz, director of the Gstaad Palace Hotel. “Reservations for August, however, are so far better than last year. Reservations for next winter also look very good at the moment. We have a very steady clientele.”
More modestly-priced hotels are no exception. The owner of Gstaad’s Sporthotel Victoria, Heinz Oehrli said: “So far this summer has been a bit quieter, but I wouldn’t say that the season was bad until now. The rest of summer will probably be the same as always.” Depending on the weather, he expects winter and especially Christmas and New Year to be similar to last year.
Interviews with local mountain guides, fitness centers, and the region’s main mountain cable car company also yielded observations of little change, saying that loyal clientele continues to return. “My business is experiencing the best summer seasons it has ever had,” said Roland Pfäffli, owner of Move It Fitness, a gym and karate studio in Gstaad. He says it is unclear whether this is due to macroeconomic factors or his recent investments in cardiovascular machines.
Armon Cantieni, director of Gstaad Mountain Rides, said that although June frequency numbers were worse than last year, July numbers were better. Looking at the entire summer season so far, the result is about the same as last year.
Most retailers are also sounding optimistic. Peter Schmid, owner of TV Schmid in Gstaad, said he sees no sign of a recession. Selling what he calls mostly luxury products, he thinks that a demand for high quality persists. “Guests of Gstaad are not as dependent as others,” said Gusti Oehrli of Edelweiss Sport, a sports clothing store in Gstaad. “Therefore, we hardly feel a difference.”
Some local businesses voiced a less rosy picture. Urs Wittwer of Wittwer Blumen, the flower shop behind the Rialto, said his business is performing definitely worse this year than in the past three years. “The season this year was short,” Wittwer said. “It’s just beginning, and the month will soon be over. Many good guests did not come this year; these are international guests who are mainly in dollars. Our product is a luxury product, naturally.” He could not say whether or not the construction in Gstaad had a role in his dismal sales. “Everything is contributing a little,” he said.
A slight drop in the bookings of mid-priced vacations was noted. “We mostly feel a difference in the middle-market segment, that is customers primarily booking less expensive vacations," said Stefan Rhyn of Reisebüro Eggenberg, the travel agency in Gstaad. "If traveling becomes too expensive, they simply won’t travel. But luxury travel always does well.”