The story of Barcelona fashion designerAndrés Sardà follows the ascendant arc of his city’s fashion industry, from regional producer of utilitarian clothing to international fashion hub.

In 1898, his father Baldomero sold church headscarves known as mantillas españolas. After they went out of style, Andrés Sardà launched an underwear company in 1962. The aim was to produce garments that were beautiful, not just functional. By 2007, his company was selling €13m of high-end lingerie and swimwear a year; it was recently named Designer of the Year at the Salon International de la Lingerie in Paris – the second time it has won the coveted award.

Barcelona has taken advantage of its reputation for style and modernity. Its increasing popularity as a fashion shopping destination, local clothing industry giants, and fashion and design schools has in recent years helped the city transform itself into a style mecca.

The Global Language Monitor, which produces an annual ranking of world fashion capitals based on web mentions, puts Barcelona in fifth place, and the 1,700 fashion businesses in Barcelona’s region of Catalonia employ 100,000 people and generate revenues of some €13bn a year.

“Barcelona was on the map before, but it wasn’t one of the elite. But since 2007, it’s become a prime fashion capital,” says Global Language Monitor president Paul J J Payack.

When twins Aitor and Iñaki Muñoz arrived in Barcelona to study fine arts in 1990, they found a city reinventing itself for the 1992 Olympic Games.

The brothers soon shifted to clothing design, and the brand they founded, Ailanto, has won fans for its use of geometric forms and avant garde art references. Last year, they sold about 5,000 garments (a typical dress retails for €240), and designed the new uniform for the staff of the Guggenheim Museum in their home town of Bilbao.

“When we go to the shows in Paris and they ask you where your brand is from and you say Barcelona, it’s a plus,” says Aitor, 46.

Though the area’s fame is new, fashion has a long history in Barcelona. A century ago, its working class suburbs were home to a huge textile industry.

“It was the Bangladesh of Europe, with low cost production of everything textile,” says José Luis Nueno, a professor at Barcelona’s Iese Business School who studies fashion.

Later, the city became the country’s centre for Moda Pronta, a predecessor of Fast Fashion in which designers went to Paris to copy designs and turned out replicas in Spain.

Today, a handful of international giants dominate Barcelona’s fashion industry. After a turnround in which it cut prices and turned to casual clothing, locally based Mango, founded in 1984, had 2012 revenues of €1.7bn. Desigual, the Barcelona maker of colourful fashion whose slogan is “Life is cool”, had 2013 sales of €828m.

And the world’s largest clothing retailer, Inditex, owner of fashion giant Zara, also turned to Barcelona for inspiration, buying the local Stradivarius and Massimo Dutti brands in the 1990s; both now have annual sales above €1bn.

But Barcelona’s fashion industry is not immune to the economic crisis that has hit consumer and government spending in Spain.

The industry in Catalonia lost between 30 and 40 per cent of its revenues in the crisis, of which it has recovered a quarter, according to Miquel Rodríguez, who heads the Catalan government’s Consortium of Commerce, Handicrafts and Fashion.

Similarly, government support for the 080 Barcelona Fashion shows fell 40 per cent between 2011 and 2013, to about €1.3m a year.

Especially hard hit were companies dependent on the local market. Big groups such as Mango and Desigual emerged relatively unscathed, as more than 75 per cent of their sales come from outside Spain, while brands such as Andrés Sardà were hurt.

In 2008, just as Spain’s financial crisis took hold, the company sold itself to a Belgian conglomerate Van de Velde for €14.6m. The crisis hit sales at Andrés Sardà, which before the crisis was getting 65 per cent of its revenues inside Spain, and in 2012 Van de Velde had to take an €8m writedown on the deal.

The Catalan government has helped local fashion businesses to become more international. In the past three years, it has taken more than 30 companies and designers on trade missions to countries such as Russia, Colombia and India. In Colombia, for example, seven local designers staged a version of the 080 Barcelona Fashion show.

“The clearest difference is between those who had a majority of their sales in Spain versus those who sold outside,” says Mr Rodríguez. “Those who are recovering most are those who had begun to internationalise.”

If Barcelona gets its next steps right, says Custo Dalmau, co-owner of a local fashion group known for its colourful shirts, the city “could rival Milan”.