Kate Hudson wore a revealing Versace dress at the American Music Awards.

Kate Hudson wore Versace at the American Music Awards. She is also starring in 'Nine' a new musical about '60s Italian movies.

Italian fashion, from Armani and Dolce & Gabbana to Versace, is taking a lesson from the man in the gray flannel suit. Boring is  good, boring works in the tough economy.

Long known for its flamboyant and edgy looks, the Italian fashion industry is being slammed by the global downturn, forcing major houses to tone down their ostentatious collections to make them more marketable, according to an industry conference in Milan.

Andrea Guerra, chief executive of the Luxottica eyewear company and Michele Norsa, chief executive of Ferragamo say the key to survival is to concentrate on the core product and cut cost wherever possible.

“We need to return to being more boring. That means if we are good at eyewear, we need to make eyewear and thank goodness for 49 years we have made only eyewear,” Guerra said.

“Others thought the time was ripe to do everything, and they now see that doing everything was a disaster,” he added.

Guerra called the last three years before the downturn, 2005-2007, “years of unreality.” Fashion houses spent freely, almost wildly, pursuing designs that lacked practicality. “This is a new world,” he said.

“It is not about declines and crashes,” he said, adding that it is a normal evolution, not a step back to the past.

“We have lost consumers who spent without looking at prices,” Norsa said.

Apparel sales are being especially hard hit this year. Sales are expected to fall 5 percent in 2009 after growing 4 percent last year, said Paula Durante, a luxury analyst at Merrill Lynch, citing a Bank of America-Merrill Lynch, study.

In October, Versace Group, based in Milan, said it would cut 26 percent of its worldwide work force and consolidate its operations after suffering a loss this year. It hopes to return to profitability in 2011.

Of course, how bad can things really be?

Earlier this month, Domenico Dolce and Stefano Gabbana bought a new two-floor apartment on 10th Ave. in Chelsea in Manhattan. One-floor units start at a whopping $5 million, according to the New York Daily News.

They went out and celebrated at high-priced Il Bastardo in Chelsea with model Adam Senn who is appearing in the new D&G ads along with Madonna. No doubt they are parking some of their Italian lira in a safe haven.

Nonetheless, the Italian government is looking for ways to help the fashion industry, according to Mario Boselli, head of the Milan Fashion Chamber.

“There is a slow recovery, but that is a problem. You can’t recover so slowly and without energy or you risk losing a lot of this country’s wealth,” Boselli told the gathering.

Boselli said he expects to see the worst when full-year earnings come out in the winter with revenues dropping on average of 15 to 20 percent. He expects more small companies to close and others to seek bankruptcy protection.

“An intervention has to be in the interest of the government in terms of costs and benefits,” he said.