Companies & Industries

Crumbs Bake Shop (2003–2014) crumbled after expanding too quickly

Crumbs rode the cupcake craze to 70 locations but was pushed to bankruptcy after chasing one too many trends

Closed Crumbs Bake Shop storefront

A shuttered Crumbs storefront in New York (Bilgin Sasmaz/Anadolu Agency/Getty)

Crumbs Bake Shop, the cupcake brand that brought us 4-inch, frosting-laden gourmet desserts, was born in New York City in March 2003. It was the brainchild of husband-and-wife duo Jason, an entrepreneur who manufactured celebrity-licensed products, and Mia Bauer, an attorney who worked for elected city officials and politicians.

Crumbs emerged just as the craving for a decadent individual dessert in a bite-sized portion was in vogue and cupcake shops started popping up in major cities across the U.S. The retailer differentiated itself among its high-end counterparts like New York-based Magnolia Bakery, Los Angeles-based Sprinkles and D.C.-based Georgetown Cupcakes with its colossal cupcakes that often weighed in at more than 600 calories and cost roughly US$3.50 to $4.50 each. Customers ate them up. They loved Crumbs’s specialty flavours like cookie dough, red velvet cheesecake, peanut butter cup and caramel macchiato.

The couple expanded Crumbs from a single bakery on the Upper West Side of Manhattan to six bake shops before selling 50% of the company in 2008 to Edwin Lewis, a well-known former fashion executive who had worked at Tommy Hilfiger Inc., for US$10 million. With an additional investor, Crumbs was able to expand to 35 locations across six states and Washington, D.C.

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As Crumbs grew up, so did its aspirations. Jason Bauer, chief executive at the time, had set his eyes on opening 200 stores by 2014. A merger with investment company 57th Street General Acquisition Corp. in 2011 gave the company a taste of that possible expansion, and the US$66 million deal led to America’s largest cupcake chain to go public. Net sales in 2011 were US$39.88 million, a 28.3% increase over the year before.

But as Crumbs traded on the Nasdaq stock exchange, and added more stores to its collection ­– in its heyday, it had 70 locations across the U.S. – the company struggled. Crumbs had diversified its product line adding bake mixes and coffee, but customers proved reluctant to diversify their purchases in kind. The company posted a loss of US$10.3 million in 2012, and a loss of US$18.2 million the following year. A too-rapid expansion is often cited for Crumbs’ demise—trying to run before it could walk.

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It seemed like Crumbs was turning things around when they hired former Aéropostale Inc. executive Edward Slezak as the company’s chief legal officer in August 2013. Late last year Slezak was promoted to chief executive and was overseeing the creation of a licensing program to sell Crumbs-branded products in other stores. Following the popularity of the ‘cronut,’ a croissant-donut hybrid invented by a Manhattan bakery, Crumbs released its own hybrid called the ‘crumbnut,’ which was being sold at supermarkets. They also jumped on the gluten-free bandwagon, and opened a Manhattan store last fall, which sold exclusively gluten-free confections. Even with these brand extensions, Slezak had said he would close unprofitable locations.

Crumbs started looking stale when the company got a US$5 million credit line from Fischer Enterprises in January after efforts to turn around the company’s finances failed. Concerns for the bakeshop’s well-being were also sparked when the company warned in a Securities and Exchange Commission filing this past May that it “may be forced to curtail or cease its activities” if its operations didn’t generate enough cash flow. They didn’t. In late June, Crumbs announced that  Nasdaq was delisting the company from the exchange, and on July 1 trading of the company’s stock was suspended. A week later Crumbs shuttered all of its stores and filed for Chapter 11 bankruptcy on July 11, aged 11.

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A group of investors, including Dippin’ Dots ice cream owner Fischer Enterprises and chief executive of American retailer Camping World and CNBC host Marcus Lemonis are hoping to resurrect the bakery chain. If they’re successful with their lead bid of roughly US$6.5 million at the August 21st bankruptcy auction, Lemonis has reportedly said they’ll form a new, privately held Crumbs, re-open its locations, and further expand to include multiple products like popcorn, pies, cookies, ice cream and cake. But even if Crumbs someday raises more dough, the chain won’t be nearly as focused on its flagship commodity, the supersized cupcake.