The Cupcake Fad is Dead – So What Could be Next?

Jacob Harper |

cupcake, crumbs, sprinkles, cupcake fad, craft beerOn June 25 the Nasdaq Stock Market denied a request from Crumbs Bake Shop (CRMB) to remain listed on the exchange, meaning the company is almost certainly set to be delisted. It’s a blow that is almost impossible to recover from and, once again, highlights how vulnerable businesses built on a fad are to the cruel realities of the stock market.

Crumbs went public as the cupcake fad has already crested and never lived up to the promises of its early sales. The business was built almost entirely on that fad and derived both their name and the majority of the revenue from that single product.

To be sure, single product companies can survive. Green Mountain Coffee Roasters (GMCR) has withstood barrage after barrage from skeptics while continuing to increase revenues by relying predominantly on selling just single-serving coffee pods. What sets Green Mountain apart from Crumbs is that, unlike cupcakes, coffee has been popular for hundreds of years. While cupcakes have not exactly been shunned in the past, there was not the history of popularity behind them to suggest that there was a lucrative and, more importantly, durable market for them.

It’s a lot of Monday Morning quarterbacking, to be sure, to say “I told you so” when companies like Crumbs begin to fail spectacularly. It didn’t take a market expert to declare disco dead in 1981 either. The real challenge is picking what’s next to fail. Doing that is a little trickier, but by looking at the characteristics of Crumbs, and what current companies possesses those same attributes, we can take a shot at separating the lasting industries from the passing fads.

So we looked for companies that rely on specific freshly-popular trends for revenue, specifically those whose stock has recently started to fall. And from that, we can start to guess what trends might be on their way out as well.

Craft Beer

Company in Trouble: Craft Beer Alliance (BREW)

While drinking booze is not going anywhere anytime soon, it appears that the craft beer craze, which first really found legs in the 90s before exploding the in the early 2000s, might be waning. It also appears that Craft Brew Alliance, which is responsible for the Red Hook brand of microbrew, had a solid 2013 but is now quickly losing value. Shares of the Portland brewer are down 32.7 percent in 2014, and currently sit at $10.99 a share.

Craft Soda

Company in Trouble: Reed’s (REED)

Concomitant with the craft beer craze was, to a smaller extent, the novelty soda fad. Spurred on by consumer backlash over major soda companies utilizing high fructose corn syrup in lieu of cane sugar, “popheads” started flocking to smaller batch, specialty micro sodas. This was good news for awhile for companies like Reed’s, which produce niche products like spicy ginger ale and kombucha. But 2014 has seen the public’s fascination with idiosyncratic sodas wane slightly, and Reed’s stock has shown the effects. Shares of the Los Angeles-based bottler have fallen 41.35 percent on the year to hit $4.70 apiece.

Yoga Pants

Companies in Trouble: Lululemon (LULU) ; American Apparel (APP)

One of the most striking changes to popular fashion in the 2010s was the sudden popularity of yoga pants as everyday pants, exemplified by the early success of Lululemon and to a smaller extent American Apparel.

While American Apparel isn’t as dependent on yoga pants for revenue as Lululemon is, the companies still share a striking number of similarities. Both rode the fad seemingly from nowhere to become worth hundreds of millions in market cap. Both have faced accusations of intentionally alienating customers who don’t conform to a very specific, thinner body type. Both are currently embroiled in very public spats with their founders.

And both have suffered on the market, as the yoga pant fad appears to have lost a significant amount of steam.  American Apparel shares are down 44.72 percent on the year to hit 73 cents a share, and Lululemon is down 30.34 percent to hit $5.89.

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
REED Reeds Inc. 3.95 -0.05 -1.25 19,188
LULU lululemon athletica inc. 55.31 -1.22 -2.16 2,692,571
BREW Craft Brew Alliance Inc. 14.75 0.10 0.68 121,306
ARNH Automotive Res Ntwrk Inc 0.00 0.00 0.00 0

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