I meant to post this earlier but have been very busy preparing proposals for an overseas distributor and a business plan for a collection agency. Now that those are mostly finished, here’s a case study for you.
Last month Crumbs Bake Shop, a New York-based bakery with 48 stores in 10 cities throughout the nation closed down. This is a substantial fall from better times in 2011 when it went public. In 2013, it lost $18.2 million and was delisted from NASDAQ.
So what why did this happen? May things most likely.
It could have expanded too quickly. It was founded in 2003 but already had over 40 locations by 2013. Although it was publicly traded, it might have not been able to raise enough capital through its offering to finance the rapid expansion.
Also, maybe the cupcake fad had passed: A decade before people wanted Cinnabons. Then Sex and the City made them hip. Maybe now that Sex and the City is over they want cronuts or beignets or pazookies.
Maybe the cupcakes were too big: According to an NPR story, an average Crumbs cupcake was 780 calories and had 36 grams of fat. A Hostess cupcake has 181 calories and 6 grams of fat. In today’s gluten-free, non-GMO, all-natural market, even an indulgence might have lower limits.
Crumbs probably fell victim to one or all of the factors above and then some. At the end of the day, knowing the demands of the market is paramount in importance.
Shortly after Crumbs closed its shops, an announcement was made that a deal had been reached to transfer the rights to the chain to an investment group. The group stated that their intentions were to rapidly reopen stores with more diverse offerings. As part of the agreement the existing corporation filed for bankruptcy, and court approval was needed to finalize the deal.