Crumbs Bake Shop Inc. Collapses

Crumbs Bake Shop

Crumbs Bake Shop Inc. finally collapsed on Tuesday, shutting down all of its stores across the country. The embattled chain is facing default on over $14 million in loans and has struggled for years in a densely saturated market. The company, which was founded in 2003 on Manhattan’s Upper West Side, lost approximately $23 million in the past two fiscal years.

The shutdown followed efforts to revitalize the company under CEO Edward Slezak, who took over in January. The most recent attempt to salvage the chain came in April when it joined forced with BJ’s Wholesale Club. The move involved selling “crumbnuts,” a pastry that is part croissant and part doughnut.

After securing a $5 million line of credit from Fischer Enterprises in January, Crumbs Bake Shop was unable to garner any additional funding and was consequently forced to move toward liquidation, Bloomberg reported on Tuesday. The company had 65 locations in 12 states and the District of Columbia in April, although that number fell to 48 in several subsequent rounds of closings. As of the end of last year, the chain had approximately 165 full-time employees, with 120 of them working in the stores.

The company announced last week that the Nasdaq was delisting its stock. Crumbs expects the move to trigger a default on $9.3 million in secured notes and $5.1 million in unsecured notes.

Analysts touted Crumbs Bake Shop Inc. as a company on the rise only a few short years before its collapse. The company had over two dozen stores across the country in 2010, and was earning $1.8 million in net income from its $31.1 million in sales. That same year, Inc. magazine celebrated Crumbs as a “breakout company.” In 2011, the cupcake chain, led by co-founder Jason Bauer, became a publicly held business with plans to establish 200 new locations in the top 15 markets by the end of this year.

Despite growing sales and the addition of several locations, Crumbs steadily become less and less profitable. Investors’ frustration with the lack of progress played a role in causing the company’s shares to plummet from $13 in 2011 to below a dollar in 2013.

The cupcake craze began in 2000 after a Sex in the City character ate one onscreen. Crumbs was able to capitalize on the popularity, in part due to the wide variety of its products. At one point, the chain sold over 75 flavors of cupcakes in sizes ranging from the 6.5-inch-tall “Colossal” to the one-inch-tall “Taste.” These features were unable to overcome the difficulties of dealing in a market filled to the brim with competitors. High real estate costs also took their toll on the company.

In spite of Crumbs’s downfall, other cupcake companies still seem to be going strong. Nevertheless, in the aftermath of its collapse, Forbes journalist Brian Solomon pointed out that the case of Crumbs Bake Shop Inc. serves as a warning to investors scouting out the IPOs of endeavors in trendy and upscale markets. Younger companies and those reliant on a single product are also ones to be wary of, he warned in a post-mortem analysis of the fallen cupcake empire.

By Yitzchak Besser

Sources:
Bloomberg
Business Insider
CNN
The Washington Post
Forbes

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