Crumbs Bake Shop: A Dangerous Lesson on Investing in Consumer Fads

Joe Goldman |

The gourmet cupcake fad officially ended Tuesday when Crumbs Bake Shop (CRMB) announced that it has baked its last cupcake and has already closed all of its stores. While hindsight may have many investors questioning how anyone could think a business based on a niche dessert could possibly succeed on a large scale, it isn't the first time the market has gotten caught up in a consumer-driven hysteria. 

Still, the failure of Crumbs is a cruel reminder that overexposure to a particular fad can lead to bankruptcy when the fad eventually dies. Death by fad has happened plenty of times throughout history, and should continue to remind companies not to get overinvested in a trend that won’t last.

Crumbs Cupcakes

The cupcake revolution crumbled on Tuesday after Crumbs Bake Shop announced the closing of all stores. The company will file for Chapter 7 bankruptcy liquidation and its operations will cease immediately.

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The cupcake fad began around a decade ago and had relative longevity compared to other food trends. Sprinkles Cupcakes remains a popular cupcake destination at all of its 12 locations, but the cupcake fad has nonetheless lost its sweetness. Crumbs had been in secular decline for years, as the stock traded above $13 per share in 2011 and reached a low of $0.02 this week.

Heelys

Heelys produces shoes with a removable wheel on each heel. Kids rolling around on Heelys as a common site on elementary school playgrounds nationwide during the early and mid-2000s, when students could pop a wheel into their shoe during recess and remove it when returning to class.

 

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For reasons unknown, Heelys simply lost playground credibility. The company eventually sold to Sequential Brands Group (SQBG) for $63.2 million in 2012, a far cry from its peak valuation of around $1 billion just a few years prior.

Jones Soda (JSDA) & Reed’s Inc. (REED)

Many believed that craft soda makers Jones Soda and Reed’s were prepared to capture a sizable piece of the soda market. Both companies innovated and manufactured alternative soda flavors such as flavored ginger ale, berry limeade soda, orange cream soda, sugar free beverages, and many others popular options.

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The counter Coca Cola (KO) rebellion yielded some tasty beverages but was short-lived. Jones Soda’s market cap was over $1 billion in 2007 and now rests at $15 million. Reed’s attempted to acquire Jones Soda in 2010 to consolidate the craft soda industry, but the deal fell apart after Jones got cold feet.

Starter Clothing

The Starter jacket, a colorful jacket made by the Starter Clothing Line to display allegiance to a sports team, was all the rage during the 1980s and 1990s. Celebrities like Ice Cube in Boyz n the Hood and Will Smith in The Fresh Prince of Bel-Air helped popularize Starter Jackets for sports fans and young people.

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At one point, Starter’s annual revenue topped $100 million but fell victim to changing consumer tastes in sports apparel. Starter was bought out by Nike (NKE) in 2004 for $43 million and later sold to Iconix for $60 million. Starter is now sold exclusively at Walmart (WMT) .

Pogs

Pogs, produced by the Canada Games Company, was a hugely popular game during the 1990s. Pogs were cardboard disks with various TV shows, sports teams, designs, and other pop culture references printed on one side. These pieces were used in a game that involved flipping the Pogs with a “slammer.” Players often played “for keeps,” where the winner would keep the Pogs that he or she won.

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Pogs were highly collectible, but eventually the market became oversaturated with Pogs and was no longer cool. Since the game wasn’t very fun to begin with, people stopped buying Pogs and Canada Games stopped production in 1997. The company went out of business that same year.

Zubaz

Zubaz was a brand of colorful and comfortable elastic shorts and pants. The company sold over $100 million worth of pants in 1991 and became one of the trendiest brands of clothing in the 1990s.

Simply put, Zubaz were hideous, and the company went bankrupt in 1996. However, Zubaz has made a comeback as a popular choice for 90s-themed parties. The Detroit Tigers hosted Zubapalooza this season, when the team gave away Tiger-printed clothes to fans. Star players Miguel Cabrera and Justin Verlander were photographed wearing Tiger-printed pants and tops.

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