Designer Isaac Mizrahi shuttered the doors of his business yesterday, which comes as no surprise after years of poor sales. But that does not lessen the blow to the American fashion industry. It has lost one of its most beloved talents and eloquent spokesmen.

From his first triumphant runway presentation in a cramped loft in 1988, Mizrahi was embraced by the fashion industry for his relentlessly optimistic and enthusiastic point of view. His clothes dominated the fashion magazines and received regular critical acclaim. His collections were renowned for their effervescent use of color, the simplicity of the silhouettes and their utterly American approach to style. Mizrahi's muses were not countesses and queens, but rather the icons of this country's popular culture; he was inspired by television characters such as Mary Richards and Laura Petrie. Through his clothes, he revealed his addiction to Hollywood glamour and his stubborn belief in an idealistic notion that every woman could and should look fabulous.

Along the way, Mizrahi became a star. He appeared in the 1995 documentary "Unzipped," which followed him through the tortured creation of a single collection. He has had small roles in feature films and on television shows. He has appeared on "Jeopardy!," written books and articles and amused the world with his witty repartee.

Everyone loved Mizrahi. The great irony was that Mizrahi had enormous name recognition -- and lousy sales, according to Chanel Inc., his financial backer. The company simply was not operating in the black.

"It made a small profit in the early stages, but not once it got going," said Michael Rena, executive vice president of Chanel.

Chanel and Mizrahi formally shut down the business yesterday. A small transition team will remain in the SoHo headquarters through November to tie up loose ends. There, of course, will be no spring '99 presentation in November. The fall '98 collection, currently in stores and on the trunk show circuit, is the last commitment scheduled to be honored.

Mizrahi was faced with the task of telling his staff, some of whom had been with him from the beginning, that the company was closing. "It all happened really quickly," said executive Dawn Brown. "He has been discussing this with Chanel for a while, but {Thursday} he had to face people he had been with for 11 years." He made the announcement with a mix of sadness, numbness and a determination to look toward the future, she said.

Indeed, that night, he and choreographer Mark Morris were guests of Vogue editor Anna Wintour at a benefit performance of "Swan Lake" in New York. Mizrahi, refusing to back out at the last moment, faced members of the fashion industry with his signature good humor. And the industry responded with hugs, kisses and an outpouring of warmth for one of its favorite sons. So what if the business failed? Mizrahi the personality will continue.

Now officially out of the garment business, Mizrahi will turn his full attention to Hollywood. DreamWorks has optioned his cartoon tale of "Sandy the Supermodel" and he is working on a screenplay for director Barry Sonnenfeld. Just over a year ago, Mizrahi foreshadowed this moment when The Washington Post asked where he saw himself in the near future. "In the next five years, I'd like to be more heavily involved in the entertainment industry," he said.

Does the failure of Mizrahi's company bode poorly for others in the American garment industry? After all, Mizrahi seemingly had a solid chance at success. He was a young, charismatic designer who had the support of fashion's starmaking machinery. He had the solid financial support of Chanel. And by seemingly unanimous agreement, he had talent.

What went wrong?

"I don't know. I don't know," said Dina Garber, the designer sportswear buyer for Saks Jandel in Chevy Chase. "I never missed a season with {Mizrahi}. He was a talented American designer and I wanted him in my store. We haven't done that well with it in the last few years, but I wanted his name. I loved what he did."

One problem was that Mizrahi never hit upon an immediately recognizable style that could lure customers. Retailers complained that when a particular silhouette would become popular with customers, Mizrahi would move on to something else. Often, the needs of the customer were sacrificed to the creative moods of the designer.

But if Mizrahi was failing the customer, then many retailers, particularly some larger ones, were failing Mizrahi. Industry experts recount anecdotes in which salesclerks were unfamiliar with the drape and fit of garments and seemed uninterested in even trying them on to better advise shoppers. There is also a quid pro quo rule within the retail industry: Before a store will forcefully promote a label, design houses must be able to contribute to advertising budgets, give credits to stores that are forced to mark down merchandise and more. It takes deep pockets to make a profit in the fashion business. And a lot of luck. Ultimately, that may have been the missing ingredient.

Chanel began to bankroll Mizrahi's company in the early '90s. "We didn't expect to make a quick killing. You have to be prepared for a long period of investment, but we thought there was a good chance of his success," Rena said. "He's one of the most important American designers."

The influx of Chanel money allowed Mizrahi to launch a secondary line, called Isaac, that the company hoped would help to transform the business into a global brand name. But Isaac was launched about three years ago, at a time when the bridge market -- those lines priced between designer collections and mass-market companies -- was struggling. With powerhouse firms such as Ellen Tracy and Dana Buchman dominating sales, there was little room for newcomers. The Isaac line soon folded. There were few of the lucrative licensing deals that help power fashion companies to profitability. There was no perfume. Finally, Chanel decided: enough.

"It was very difficult for all of the obvious reasons. You're friendly with someone. There are colleagues you like and who trust you. And from an investment standpoint, you put a lot of money in something, you hate to give up," Rena said. He declined to reveal the extent of Chanel's monetary investment.

There has been a great deal of soul-searching to determine what went wrong and what could have been done better. Ultimately, though, there was no "earth-shattering revelation," Rena says. There was some sense in the last season or two that the clothes were starting to look better and to be of better quality. Mizrahi was more determined to create clothes that not only would satisfy his creative impulses but would also sell.

But with the Asian economic collapse -- a key market for Chanel, Mizrahi's well-known interest in other areas, and the burden of keeping the business afloat, this seemed like the right time to close down.

Still, it's a blow to the psyche of the American fashion industry. "It's so sad," said Vogue editor Wintour. "The fashion world needs these characters. It needs these life-affirming forces who relish the pure enjoyment of things so that it all doesn't become banal." CAPTION: Fashion designer Isaac Mizrahi closed his business yesterday as sales failed to match his own star quality. ec CAPTION: Isaac Mizrahi dazzled the fashion industry with such pieces as a pink strapless party dress from this past spring, left, and a pantsuit from 1994. ec