Inside the Bubbles.

When German designer Jil Sander sold a majority stake of her fashion company in 1999, the ever-shrinking fraternity of independent fashion houses took notice. Sander had become a major influence on design, and a respectable business, with $200 million in annual sales. But it was time to start thinking beyond the company base in Hamburg. In stepped CEO Patrizio Bertelli of Prada, the rapidly expanding Italian fashion house, offering worldwide manufacturing and distribution networks, know-how and, most important, big money.

If it worked, it would give the other one-man houses a utopian model for global expansion: sell out to a large conglomerate, yet keep artistic control. Unfortunately, within months, the Sander-Prada deal unraveled like a cashmere cardigan. Bertelli reportedly kicked Sander out of their first board meeting, and put out a new line of accessories under her name without consulting her. By February 2000 Sander had quit, sending a message that still rattles family fashion houses. Facing a global downturn, the pressure to sell out is growing, but the appeal is fading. "What happened to Jil gives you pause as an independent designer, and makes you say, 'Hey, nothing's perfect. There are no easy answers'," says Chet Hazzard, president and COO of Vera Wang. "You think, 'God, we don't want that to happen to us'."

In the past decade the luxury business has fallen under the control of multibillion-dollar conglomerates who are turning family names into global brands and hawking them to the masses. Shoppers strolling past a row of boutiques by, say, Gucci, Yves Saint Laurent, Balenciaga, Alexander McQueen, Stella McCartney, Sergio Rossi and Bottega Veneta likely would not recognize that they are all owned by Gucci, in effect a megastore enjoying dramatic economies of scale. Over the past three years Gucci and the other big luxury "groups," Prada and LVMH, have been gobbling up fashion houses as if they were Monopoly properties. That leaves only a half dozen or so independent luxury fashion houses in New York and in Italy. In France, there are only two that date to the industry's roots as a community of artisans: Sonia Rykiel and Courreges. "We are determined to keep our company private and build it solidly," says Simon Burstein, Sonia Rykiel's vice president (and son- in-law). "By remaining independent, we can decide what is best for our interests and not for third parties."

Oddly enough, bad times have toughened what's left of independent fashion spirit. The weakness of the big groups makes them less appealing as patrons. In recent weeks Gucci and LVMH have issued profit warnings. Prada has halted work on two megastores in the United States and is struggling to cover its $1.1 billion debt. Rumors swirled last week that the global houses might start selling off weaker brands and retail chains. Those who sold out, thinking they were getting a stable backer, now find they may be axed instead. Those who stayed independent at least control their own fate. "We're not fretting," says Burstein. "We're making decisions without having to refer to a board or losing face or dealing with our shareholders. We say, 'Let's revisit this in three months,' and we go on."

Selling out seemed to make both financial and emotional sense for many family fashion houses in the 1990s. Older designers such as Hubert de Givenchy, Nino Cerruti and Yves Saint Laurent appeared to guarantee a future for their brands, and the payoffs were huge. Yves Saint Laurent got $1 billion for just his ready-to-wear and cosmetics lines. Young designers like Alexander McQueen and Helmut Lang sold to gain the backing to go global. ...