How Christian Lacroix Went Bust

French fashion guru Jean-jacques Picart shudders at the ignominious fate of Christian Lacroix. "It's a terrible cruelty," he says. The Paris haute couture house was reduced to a mere licensing operation in December after undergoing bankruptcy proceedings last year. In March, the skeleton-staffed company announced deals to stamp the Lacroix name—the designer himself no longer has a say—on lines of eyewear, stationery, and home décor. "It's pathetic," says Picart, who is credited with discovering Lacroix two decades ago. "It's a declaration of incompetence. When you own a name like Lacroix, you don't make notebooks."

In 1987 Picart persuaded the financier Bernard Arnault to set up a haute couture house for the 36-year-old Lacroix. Arnault would go on to build Moët Hennessy–Louis Vuitton (LVMH) into a multibillion-euro luxury-goods empire with a stable of high-end icons, including Lacroix as the epitome of haute couture. For 22 years Lacroix seduced fashionistas with the wild colors of Provence and his native Arles, pouf skirts and fairy-tale wedding dresses.

Yet in a pure business sense, Christian Lacroix was a chronic failure. The house never turned a profit, incurring lifetime losses of €150 million. From the resounding flop of C'est la Vie, Lacroix's first perfume, in 1990, the company never managed to convert critical acclaim for the designer's haute couture into sales to less-rarefied customers. While other luxury companies grew profitable off kitschy, affordable accessories, Lacroix's eccentric wares proved difficult to transpose into mass wearables.

And he never found his management match, a strategic alter ego—the Giancarlo Giammetti to his Valentino, the Robert Duffy to his Marc Jacobs—to reverse the trend. By 2005, 14 CEOs had come and gone. "It wasn't a money issue: Monsieur Arnault signed the checks for a very long time," says Picart. "It wasn't a talent problem: Lacroix has been in all the museums for a long time. It was a management problem. He never had the CEO to transform the ideas into gold."

Eventually Arnault grew impatient, unwilling to play "patron of the arts," as he put it. In 2005 LVMH sold Lacroix to Falic Group, the American duty-free retailer. Falic's new mistakes were costly. For one, it quickly expanded to the U.S., opening Lacroix boutiques in Las Vegas and New York just before the global financial meltdown, instead of tapping emerging markets like China that would have proved more resilient.

But there's an ironic twist to the fall of the house of Lacroix. With hindsight, Picart suggests, Lacroix's designs might have thrived with a niche strategy, a smaller, more exclusive kind of operation that was out of fashion in the luxury sector when the couturier was coming of age. "The niche system fits better with this era than it did 20 years ago," says Picart, now a consultant to clients like LVMH. "Today, you don't need 25 boutiques around the world. Three is enough, or one in Paris. And there is more of a need for specificity, truth, modesty, uniqueness—words that weren't in the vocabulary 20 years ago, when it was about 'globalization' and 'giants.' " Indeed, that might leave a door open for Lacroix himself, if incognito. "His name is no longer his," says Picart. "But his head, his heart, his hands still are."