Fast expansion can elevate or negate business

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Laduree chairman David Holder is a man on the move. His summer itinerary includes Brussels, Luxembourg and Monaco. In the fall, he heads to Canada, Chile and Mexico.

The 152-year-old Paris-based bakery, best known for its iconic macaron, unveiled a new boutique last week in Rome near the Spanish Steps. New sites in Dubai and Bangkok will open in the coming weeks.

"It's really exciting," Mr Holder said in a telephone interview. "Everywhere we start the week we have new adventures. There is no limit and this is very exciting."

While Laduree plots its arrival to elite global metropolises, Crumbs, the once-hot New York-based gourmet cupcake chain, is toiling in a considerably less glamorous venue: a United States bankruptcy court in New Jersey.

There, Crumbs Bake Shop, which grew at a pace now seen as reckless, is trying to get approval from a bankruptcy judge to sell itself to an investor group that aims to revive the bakery and unite its gooey confections with other treats in what it calls a one-stop "sweet and snack destination".

The contrasting statuses of Laduree and Crumbs underscore the importance of expansion, a key juncture for any business but one that can be especially crucial in the modish world of retail sweets.

After going public in 2000, doughnut chain Krispy Kreme spent too much building too many stores that ended up competing with one another.

But the company, which nearly went under following an accounting scandal in 2005, has recovered under a different leadership. It notched profits the last four years with more than 800 stores in two dozen countries.

Crumbs was started with a single shop on the Upper West Side of Manhattan in 2003 by co-founders Mia and Jason Bauer. Ms Bauer, who previously worked as an attorney, has described the venture as a labour of love born from a lifelong passion for baking.

The concept caught on quickly, benefiting from a cupcake craze sparked by TV show Sex And The City, which also vaunted cupcakes by Magnolia Bakery.

Crumbs became especially well known for transforming old-fashioned vanilla and chocolate cupcakes into calorie-rich confections infused with goodies such as peanut butter cup candies and Girl Scout Thin Mints cookies.

The company grew to 35 shops and was selling more than one million cupcakes a month by the time of its June 2011 initial public offering. The plan was to grow to 200 stores in 15 leading US markets by the end of this year, a January 2011 investor presentation showed.

But it lost US$7.7 million in 2012 and US$15.3 million (S$19 million) last year, when it also had some US$25 million in debt.

It all seemed to end on July 7, when the company abruptly shut its 50-odd stores and filed for bankruptcy protection four days later. Crumbs said its financial struggle was due to a "retail expansion strategy that was ultimately proven unsustainable".

The company on July 11 announced a deal with an investment venture, Lemonis Fischer Acquisition Company, which will also provide US$1.1 million to finance the bankruptcy. However, other bidders could emerge under the bankruptcy process, which Crumbs hopes will finish in 60 days.

Professor Craig Garthwaite at the Kellogg School of Management at Northwestern University said Crumbs' fast expansion left it too financially strapped to withstand an ebbing of the cupcake craze, particularly since it was essentially a "single-item firm". Being publicly traded "tends to put a lot of pressure on you to grow, which is not always the best idea for a firm", he added.

Laduree is already a giant compared with its former self 10 years ago, when it had annual sales of just €2 million (S$3.3 million). Today, the company has about 70 stores in 25 countries on all five continents.

Mr Holder hopes to double sales in the coming years from about €125 million. But Laduree will stay "very exclusive", he said.

While the potential for the macaron - a tiny almond meringue cookie that some say has stolen the cupcake's thunder in New York - is "just huge", the French firm will build new boutiques only if it finds good retail sites with reliable partners, Mr Holder said. The company gets financing from banks and has no interest in going public.

"I don't want to be a big industrial," he said. "If I wanted to expand all over the world with no limit, of course it could be a multibillion-dollar industry. But this is not what I want."

Prof Garthwaite said Laduree's expansion strategy resembles less those of other sweetsmakers and more those of luxury brands such as Hermes, "where they're locating flagship stores in cities that tend to have fairly wealthy clientele who have probably been to the Paris location".

Laduree also has other products to fall back on, such as chocolates and other French pastries, if macaron mania ebbs.

"They have never been a single-item firm," Prof Garthwaite said. "If demand for macarons went down, Laduree existed before and Laduree will exist after because they offer a suite of products."

 
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