Crummy cupcake biz sending Crumbs to Chapter 7

Screen shot from Crumbs' splash page, still up today.
Screen shot from Crumbs' splash page, still up today.

NEW YORK, July 8, 2014 – Cupcakes here, cupcakes there, cupcake shops and TV series everywhere. For a while at least, it looked like folks couldn’t get enough of these oversized, overpriced, over-hyped treats.

But this figure-busting fad may be in its ninth inning today. New York-based cupcake empire Crumbs Bake Shop, Inc. is going out of business and closing all its stores nationwide, according to a report this morning from AP.

News of Crumbs’ demise was telegraphed to various media outlets yesterday via an emailed release, stating in part:

Regrettably Crumbs has been forced to cease operations and is immediately attending to the dislocation of its employees while it evaluates its limited remaining options.

The company, whose shares were once in the double digits, had gradually dropped below a dollar a share and was delisted from the NASDAQ last week. But today, it’s facing the ultimate indignity: it plans to file for Chapter 7 liquidation under the U.S. bankruptcy code.

Remaining employees at Crumbs’ remaining stores—down to perhaps 65 locations in 12 states plus Washington, D.C.—were notified Monday that they were being dismissed. At its peak, the company employed some 165 full-time and 655 part-time employees.

A press release from its website in March listed 65 locations in 12 states and Washington, D.C. The website had not been updated with notification of the closures late Monday.

Founded in 2003, Crumbs started out as a popular New York bakery shop whose large and often unusual cupcakes launched a dessert take-out trend, leading it to expand to more locations and ultimately take its company stock public.

A Crumbs cupcake riff on the Girl Scout Cookie.
A Crumbs cupcake riff on the Girl Scout Cookie. (Screen shot from Crumbs’ splash page)

Ultimately, it transformed itself into a chain that expanded nationwide, a parabolic growth curve aided and abetted by several increasingly absurd, wildly-hyped TV “reality” shows including WEtv’s “The Cupcake Girls,” the Food Network’s “Cupcake Wars,” TLC’s “DC Cupcakes,” focusing on Washington’s own Georgetown Cupcakes.

Crumbs often made use of novel flavor ideas and dessert and snacking fads in creating its substantial variety of super-sized cupcake choices, including some confections based on Girl Scout cookie flavors and popular niche ice creams.

But, like Crocs and now, perhaps, the stumbling Lululemon, popular fads (rubber clogs, see-through yoga togs) tend to run their course. And like those companies, Crumbs never looked into evolving its products or focus until it was too late.

Their stores had ultimately reached what’s known in the retail trade as a “saturation point,” a situation where one new store begins to cannibalize the sales of another in a given location.

Selling boutique cupcakes at BJ's. Too little, too late, or both?
Selling boutique cupcakes at BJ’s. Too little, too late, or both? (Screen shot of Crumbs’ splash page)

Perhaps Crumbs should have taken a look at the Starbucks coffee chain which, years ago, wisely expanded into bakery, snack and food offerings to supplement their trendy (and expensive) coffee drinks, successfully perking up that business to perfection, while closing select stores that made it difficult for nearby ones to turn a profit and expanding internationally.

In any event, for 2014’s fiscal first quarter, Crumbs was already well into its steep decline. The company reported a loss of $3.8 million, substantially more than its $2 million in red ink from the same period a year ago.

In addition to the waterfall decline in Crumbs’ same-store sales, demand, predictably, had begun to drop. From hula-hoops to crocs, no fad lasts forever. Cupcakes, according to some industry reports, had begun to peak in 2012.

Today, the cupcake wars are getting shouldered aside by those “artisanal” ice creams that sell for about $10 a cup (or so it seems) as well as a weird hybrid, a layered croissant-doughnut pastry dessert called the “Cronut” by its inventor, another New York based bakery maven named Dominique Ansel. He fries the stuff in grape seed oil before filling it and sugaring or glazing it.

Perhaps he plans to derail the durable bacon megatrend in unhealthy dining.

Persistent rumors that Michelle Obama plans to add the Cronut to her popular nationwide school lunch menu appear to be unfounded, BTW.

Meanwhile, the moral of Crumbs’ rags-to-riches-to-rags business story has been repeated countless times. In what’s left of our capitalist system, a business, once successful, must continue to grow, expand and innovate. If it gets too comfortable as a one-product wonder, it will soon become a victim of corporate Darwinism.

And that’s why the average investor should be careful when getting involved in trendy stocks of trendy businesses. Sticking with them too long can be hazardous to your portfolio.

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