Caving under losses, Crumbs Bake Shop Inc. has closed its high-end bakeries in Los Angeles and elsewhere after more than a decade of promoting the cupcakes that tapped the nation's sweet tooth.
Financially, the nation's biggest cupcake chain recently lost its stock listing on Nasdaq and defaulted on about $14.3 million in financing. It lost $3.8 million in the first quarter, nearly twice the $2-million loss in last year's first three months.
But a growing consumer distaste for rich desserts, especially ones like the opulent Crumbs cakes, also indicates a cooling market and possibly tougher times ahead for those bakeries that focus solely on cupcakes, analysts said.
Stephanie Ellis, a spokeswoman for the New York bakery, said employees at 48 stores in 10 states and the District of Columbia were notified of the closures Monday, the last day of business. She did not say how many workers lost their jobs. Crumbs had about 165 full-time and about 655 part-time employees at the end of last year.
The company said it would evaluate its "limited remaining options," including a Bankruptcy Court liquidation.
On Larchmont Boulevard in Los Angeles, shades were drawn and a small "Closed" sign hung haphazardly on the door of the corner shop that marks that last Crumbs store in the area.
Larchmont locals were surprised that the little shop closed so quickly. They described it as "bustling" and a "very popular neighborhood joint."
"I am in shock," said Barry Cohanim, a manager at the neighboring Larchmont Beauty Center whose favorite cupcake flavor was cookies and cream. "People were always passing by carrying the red bags, and we would always order boxes of them for our events."
The cupcakery had grown quickly on the sudden popularity of cupcakes as alternative desserts after the hit television series "Sex and the City" featured New York's Magnolia Bakery in the early 2000s.
Crumbs opened in 2003 and offered giant, specialty cupcakes in a variety of flavors such as red velvet, fluffernutter and s'mores — eventually for as much as $5 each.
Competing cupcakeries, such as Sprinkles in Los Angeles and Georgetown Cupcake in Washington, D.C., popped up across the country and boasted lines out the door.
Despite its high prices, Crumbs survived the Great Recession and the industry's 15% drop in sales in 2009, according to the NPD Group consulting firm, as Americans stopped splurging on specialty purchases.
As sales improved 8% industrywide in each of the next two years, Crumbs went public early in 2011 and saw shares hit a high of $16 by midyear.
But rapid expansion, competition, high prices and changing consumer habits became too much. The chain closed more than 20 stores this year, including ones in Beverly Hills, Malibu, Glendale and Hollywood. The stock closed at 11 cents a share June 30, its last day on Nasdaq.
"The craze is basically over," said Bonnie Riggs, an NPD restaurant analyst. "The market is saturated and the novelty has worn off."
Cupcake sales dropped 6% in 2012 and were flat last year, according to NPD. They slipped 1% through the first four months this year.
Pricey cupcakes appeal to small, affluent demographics and to consumers who want one taste of the trend, Riggs said. People aren't buying a Crumbs cupcake every day.
"It's an infrequent purchase, and there's not enough business to sustain a concept like that," she said.
Others, though, see more of a cooling trend and a place for well-run cupcakeries.
Stable success has to do with keeping size and price digestible in an unstable, fluctuating market, said Kevin Burke, a restaurant industry expert at Trinity Capital, a Los Angeles investment banking firm. Consumers, he said, also are shifting toward more healthful snacks and less-indulgent desserts.
"Monstrosity, 600-calorie cupcakes that cost $5 a pop don't fit in with yoga studios and juice shops," he said. Crumbs was "competing in a changing market with a product that was over the top."
Charles Nelson, who with wife Candace started Sprinkles in 2003 out of their house in Los Angeles, said his chain is still evolving and sales are up.
Though he started it as a cupcake-only bakery, Nelson said he now refers to Sprinkles as a "specialty dessert store" because it has changed with the market. The chain sells ice cream and cookies, which still pale in comparison to sales of the famous cupcakes.
The other desserts incorporate Sprinkles' main attraction, creating such concoctions as cupcake-topped ice cream sandwiches and cupcake chunks swirled into ice cream. Nelson said the chain plans to open 10 more stores in the next 12 months, with one in Crumbs' former Glendale spot.
"We are really happy with our growth trajectory," Nelson said. "We still believe in cupcakes and the market and know cupcakes are not dead."
At Georgetown Cupcake, which opened in 2008 and now has its own reality TV show, "DC Cupcakes," executives also see strong growth. Its Los Angeles store, one of 20 nationwide, became "a popular destination" as soon as it opened last year, spokeswoman Farial Awan said.
Magnolia Bakery, meantime, is seeing higher sales not only from expanding to seven stores domestically and seven abroad but also by offering other desserts, such as banana pudding, cookies and pies, that bring in roughly half its sales.
Compared to prices at Crumbs, cupcakes are $3 each at Georgetown and $3.75 at Sprinkles, with mini options for less. Sprinkles also offers vegan, sugar-free and gluten-free options to attract health-conscious customers.
Crumbs also grew too fast in an unstable economy, Burke said. The chain swelled to 70 stores in 10 years, with the bulk of operations in high-rent areas such as Manhattan, Beverly Hills, Malibu and Greenwich Village.
"They fell victim to wanting to be in trendy places with the highest rent," he said.
A few doors down from the closed Crumbs store on Larchmont, Elan Tanzer sits with a group of friends at a Peets Coffee & Tea Inc. store, missing the one item they often enjoyed with their morning coffee.
"Our friend would always bring eight cupcakes while we had our coffee," she said. But she's sure of one thing: "Red velvet. Red velvet will never die."