The answer is likely a mixture of the two—the cupcake craze, while still ongoing, has deflated, and size does matter—but there's more at play here. A closer look at Crumbs' crummy cupcake business paints a pretty clear picture.
Five things in particular stand out.
Crumbs grew too quickly
Crumbs Bake Shop, which opened its first location in 2003, grew to 70 stores in 10 states last year. That was well over 20 too many. The cupcake business just wasn't all that scale-able. As of yesterday, the chain had closed more than 20 locations in 2014.
But the number of cupcake shops only tells half the story
That's because as Crumbs expanded, it was actually making less and less money per cupcake shop. In 2009, Crumbs raked in almost $1.2 million per store. By last year its per store sales had fallen 42 percent to just under $650,000.
And it's not like making cupcakes was actually making Crumbs any money...
Quite the opposite, in fact. It was actually costing Crumbs millions of dollars every year, and more and more each year. The last year the company was profitable was 2010. In 2013, it lost more than $18 million.
...or Crumbs was sitting on a bunch of cupcake cash
After building up more than $6 million in cash in 2012, the company's bank account plunged to less than $900,000 last year.
And guess what: Even Wall Street knew
Cupcakes are a fad, not a food staple. The cupcake bubble, after all, was exactly that: a bubble. And bubbles—even cupcake bubbles (paywall)—burst. The market called this one back in 2011.
Crumbs Bake Shop didn't immediately reply to a request for comment.