Is it bye bye to bling bling?

It hasn't been a good week for the glamorous reputation of Versace, the flashiest, brashiest fashion brand on the planet. First it emerged that the house is abandoning its famously extravagant haute couture catwalk show in Paris later this month in favour of a low-key "presentation" in its boutique - on dummies. Then, Donatella Versace was named one of the worstdressed people in the world by the New York-based ex-fashion designer Richard Selzer, who described her as "a flash-fired Venus, stuck in a Miami strip mall". Ouch.

So, we won't be seeing pictures of Elizabeth Hurley, P Diddy, J-Lo, Madonna, Rupert Everett or any of the other Versace favourites perched on tiny gilt chairs in the front row. The fashion press won't be attending the usual post-show bash and dancing with Madonna, eating Jennifer Lopez's wedding cake or any of the other boasts that accompany an evening fuelled by Versace's spectacular generosity. Indeed, the press and the remaining handful of couture customers will simply trot into the Versace store on the Rue du Faubourg Saint Honorè, get a close look at a small collection of no doubt breathtakingly beautiful dresses, quaff a glass of champers and go.

By abandoning catwalk couture (Versace will still be staging its ready-to-wear shows twice yearly), the house is saving the estimated £640,000 it can cost to produce, stage and promote a collection that sells to no more than 200 women in the world. This includes around £70,000 on Concorde flights, suites at the Ritz and free clothes for the front-row stars. A fleet of 20 models costs about £240,000.

"This season felt like the right moment to make a change," Donatella Versace said of the decision. "This is a way to present the clothes in a more intimate environment."

Behind the smoke-screen of fashion speak, what does this mean? Versace did, after all, close one of its two Bond Street stores last year. Is the age of extravagance finally over? Well, it certainly makes you wonder who, apart from J-Lo, Liz Hurley and the hip-hop divas, actually wears the stuff, and whether the validity of Versace's "bling-bling" look has gone the way of the dodo. Madonna only wears tracksuits these days. The only people who actually look Vers-a-chay in this country are the cast members of Footballers' Wives.

Ask most fashion "types" what they wear and Versace won't make the list; it simply doesn't have the hipness of Balenciaga or Marc Jacobs. Everyone knows that, because Versace has always advertised heavily in the glossies, it will always get more editorial coverage than perhaps it warrants. The house does, however, sell shedloads of jeans, underwear, sunglasses and sportswear. It also has 17 perfumes, a make-up and skin-care line, a hotel and a children's range. How else would it bring in its £400-odd million-a-year turnover?

"We Brits have always found Versace difficult to wear," says Roger Tredre, editor-in-chief of WGSN, the fashion business news website. "Versace is one of the most powerful brands in the world.

From a business perspective I would defend their move to downscale as a prudent one. Couture doesn't contribute to the bottom line. The word in the luxury fashion business now is: don't spend where you don't need to."

"We're not shopping anywhere near as much as we did at the turn of the millennium," says Vogue's Harriet Quick. "Versace has always opened couture week and always signalled excess. Now is not the time for that. The mood out there is cautious."

Which brings us to what is really happening in the world of luxury fashion. Sales are down. Versace's profits dipped an estimated 28 per cent in 2002, but with good reason: it is buying back all its licences and franchises in the Far East - a costly process.

In contrast, Gucci's profits slumped by 55 per cent last year. At the brand's London HQ staff have been ordered to take public transport, not taxis, and only to fly economy.

Another indication of belt-tightening was evident at Christmas. Every year fashion editors receive gifts from the big houses, typically Prada skis or Gucci flippers and snorkel. This year the gifts were very low-key. Louis Vuitton gave beautiful pens when last year it was outsize luggage; Versace gave handbags only to hand-picked glossy editors.

So Versace, for once, is being prudent. But don't expect it to last. By March, when the ready-to-wear collections get under way, it will be business as usual. After all, £640,000 on a catwalk show is equal to £6 million in free advertising (in terms of tabloid coverage) for those sunglasses and scents we can all actually afford. And no one would turn that down for very long.