(FORTUNE Magazine) – Thirteen years ago, John Peterman walked into the office of New York marketing consultant Don Staley wearing a floor-length duster coat he'd bought in Wyoming. Staley had never seen Peterman looking so good. "He looked like a different person," Staley said. "He actually looked more interesting. He looked like an individualist."

The two decided that Peterman would get more coats and return home to Kentucky to set up shop. Staley would advertise the coat in The New Yorker with a drawing and some coy text. To their surprise, the phones started ringing and coats started selling. People asked what else the company sold--the J. Peterman catalog was born. In 1995 they got a priceless PR boost: Seinfeld gave a lead character a job at J. Peterman. Soon Peterman had 25% brand recognition among American adults. The company made big plans for growth. Less than four years later, on Jan. 25, it filed for Chapter 11.

How could anyone blow such an opportunity? Staley says Peterman got swept away on his own adventure--with help from a retailing expert. In July 1997, Peterman hired a former J. Crew executive, Arnold Cohen, as president and COO. The next month the two outlined a plan: In five years they'd go from one full-priced store to 50, from three outlet stores to 20, and launch two new catalogs. These efforts, they said, would position them for a dazzling IPO.

Instead, they're looking for buyers. Cohen and Peterman blame soft catalog sales and delayed store openings; Staley says that "Arnie Cohen didn't understand our customer, he didn't understand our employees, he didn't understand the J. Peterman persona. I hate to say it, but he didn't understand any of it."

Even a quick look at Cohen's track record should have given Peterman pause. His previous employers, London Fog, Today's Man, and J. Crew, all faced financial difficulties after his departure--Today's Man filed for Chapter 11. "That's true," Cohen says. "You can't ignore that."

According to Staley, who was J. Peterman's creative director, Cohen's lack of understanding manifested itself in decisions like lowering the quality of the products and covering the catalog in sale stickers. "The Peterman customer is not price sensitive," Staley says. "If they think something is really unusual and worthy, they'll buy it. It might be a skirt for $900, or it might be a skirt for $1,900." (Cohen and Peterman deny that quality has suffered or that the catalog was changed.)

Staley maintains his ideas were either dismissed or fatally altered. He says he proposed reproducing costumes from classic films like Casablanca; Cohen and Peterman ordered replicas of Uma Thurman's catsuit from the execrable The Avengers. Worse, Staley had wanted each garment to have a tag detailing its cinematic history, but the duo cut the tags (legal difficulties, Peterman says), which all but removed the clothing's reason for existence. Thus, in the New York store hangs a rack of unidentifiable, out-of-style dresses instead of film couture, and behind the counter stands a mannequin in an ugly, utterly unwearable PVC catsuit. "They truly don't understand," Staley laments. "They've killed my baby."

--Lauren Goldstein