How The Massive Crumbs Cupcake Empire Finally Caved
Upon hearing the news, a Brooklyn-based Crumbs manager told the Wall Street Journal, "I come into work today, I'm happy, I'm skipping to work, and suddenly I don't have a job."
The news came just a few days after Crumbs was delisted from NASDAQ.
The once-hot bakery catapulted to fame thanks to a cupcake craze that swept across the U.S. in the early 2000s. Shortly after going public in 2011, however, Crumbs began losing money.
Three years after "Sex and the City" inspired a cupcake craze, Crumbs was born.
It all started in 2000 when character Carrie Bradshaw ate a cupcake from Magnolia Bakery's West Village location. Tourists began flocking there and a "Sex and the City" tour bus made the location a destination. The cupcake craze had officially begun.
Mia and Jason Bauer, respectively a legislative counsel and a consumer product entrepreneur, were quick to jump on the trend, opening the first Crumbs on the Upper West Side in 2003.
"My expectations were very simple, and they came to fruition immediately," Mia Bauer told New York Family in 2012. "The goal was to have a neighborhood bakery where I knew everybody and their kids, and I made all their birthday cakes."
Crumbs was a huge hit.
People went crazy for Crumbs' cupcakes, and the company was able to sell its gourmet product for as much as $4.50 a pop.
In an interview with Newsweek, Jason Bauer explained why the cupcakes were such a hit.
"If you rewind to 2002, cupcakes were vanilla, chocolate, lemon, or strawberry, maybe with sprinkles," he said. "When we opened our stores, Mia created three types of cupcakes with cool fillings, frostings, and decorations. Every day they sold out, so we decided to expand that line and continued to grow it. We started making gourmet cupcakes and [that’s] what has now become the industry standard."
Crumbs' cupcakes eventually came in more than 75 flavors and ranged from the 1-inch-tall "Taste" cupcake to the 6.5-inch-tall "Colossal," which could feed up to six people.
Next came a nationwide expansion.
Crumbs started opening more shops in New York and expanded to Philadelphia, Washington, D.C., and Beverly Hills, among other cities.
But at the same time, hundreds of other cupcake bakeries opened across the U.S. Among them were Sprinkles Cupcakes, which launched in 2005; Cupcake Nouveau in 2007; and Georgetown Cupcake in 2008.
As the cupcake craze ballooned, television networks began taking notice. The Food Network started airing "Cupcake Wars" and TLC launched "DC Cupcakes," a show about Georgetown Cupcake and its owners.
The Bauers sold half their stake in Crumbs for $10 million in 2008, and the empire kept growing.
Two years later, Crumbs was named one of Inc. Magazine’s 500 fastest-growing companies in America and it moved into new corporate headquarters near Bryant Park in Manhattan.
With more than two dozen shops open around the U.S. in 2010, Crumbs generated about $1.8 million in net income on $31.1 million in sales and estimated that it would double its profit to as much as $3.9 million the following year, according to Daily Finance.
In 2011, the average check size was $19, with most customers buying cupcakes in bulk.
That year, the typical Crumbs store generated more than $1,000 of annual sales per square foot, which was comparable with McDonald's when it came to sales volume, according to Daily Finance.
The company revealed an aggressive plan for cupcake market domination.
When Crumbs opened in 2003, there were only three bakeries devoted to cupcakes nationwide, according to Newsweek. By 2011, there were hundreds.
Bauer said Crumbs would remain competitive by expanding rapidly.
"We’re looking to open 200 stores by the end of 2014. I want to be the national neighborhood local bakery," he told Newsweek. "Twenty years ago, people didn’t go to Walmart to buy a birthday cake. They went to a bakery. We want it to be that way again. We want to be the neighborhood bakery in every town across the country. We’re trying to position ourselves as the dessert destination."
Crumbs was acquired for $66 million in 2011 as it prepared to go public.
A holding company called 57th Street General Acquisition Corp. acquired Crumbs and took it public in June 2011 at a price of $13 per share. Crumbs had 35 locations at the time.
But beneath the surface, trouble was brewing.
Crumbs' troubles began in mid-2011, when it was orchestrating a massive expansion, according to former Crumbs president and CEO Julian Geiger.
Same-stores sales started declining as the cupcake market was rapidly growing more crowded, and analysts began warning of a possible cupcake bubble.
Crumbs was also plagued by high real estate costs, according to Darren Tristano, executive vice president at the food industry research firm Technomic.
The company's shops averaged about 1,000 square feet, with one outlet near Chicago measuring 3,300 square feet, Tristano told Crain's New York Business reporter Aaron Elstein.
"That meant high rents and lots of extra space in places where shoppers seldom lingered," Elstein wrote.
The Wall Street Journal would later conclude that Crumbs' downfall was the result of mass "gourmet-cupcake burnout."
After a lackluster earnings report, Crumbs' stock suddenly crashed.
The company reported in August 2011 that same-store sales fell 6% in the three months ending June 30 of that year. By September, Crumbs stock had plunged to $3.75 from its $13 IPO price.
In November, Jason Bauer resigned from his position as president and CEO.
In 2013, the Crumbs empire finally began to cave.
Despite falling same-store sales, the company kept opening new locations for several years, climbing to 70 locations in 2013, up from 35 in mid-2011.
Eventually, the chain started closing stores.
"We have talked repeatedly about wanting to close certain underperforming stores within our real estate portfolio," former CEO Julian Geiger said in an August 2013 conference call. "We are making real progress."
In June, we reported that Crumbs' most recent SEC filing said it was down to 58 locations. It had planned to continue closing underperforming stores this year.
The company tried looking for other ways to make a profit.
Crumbs reported a net loss of $15.3 million in 2013, up from a $7.7 million loss in 2012.
Recently, the company tried to offset its declines by licensing its treats, with coffee and bake mixes to be sold in grocery stores.
"We have known for quite some time now that we needed to evolve our business model," CEO Edward M. Slezak said in a March 2013 release. "Our focus for 2014 will be on executing our initiatives and strategies of licensing our brand for complimentary product categories, positioning ourselves to move toward a franchise store model, and continuing to close under-performing stores. We believe these actions will put our business on a trajectory toward increased growth and vitality in the future."
But the outlook has been bleak for awhile.
Crumbs auditors recently expressed "substantial doubt" over whether the company could stay in business.
The company also saw some obstacles to continuing operations, according to its most recent SEC filing. In its 10-Q, the company wrote:
"We need additional capital to fund future cash flow requirements, and we may not be able to obtain such funds on acceptable terms. Raising additional funds by issuing securities or through lending or licensing arrangements may cause dilution to [Crumbs'] existing security holders, restrict our operations or require us to relinquish proprietary rights. Management believes that our cash flow requirements will likely consume our existing capital resources and cash from anticipated sales unless we are able to raise additional funds prior to June 30, 2014."
Now the company is considering bankruptcy.
On Monday, a Crumbs spokeswoman told the Wall Street Journal that it had been forced to stop operating while it considered its "limited remaining options."
One of those options could be bankruptcy, she said.
Now that Crumbs is closing, you could try making your own cupcakes at home.