It shares its name with the blight on many a teenaged chin. But since jeans brand Acne was launched a decade ago, it has grown into one of Sweden's hottest exports. Kay Barron travels to Stockholm to meet the makers

Everything they say about Sweden is true – it really is the land of the beautiful. Think porcelain cheeks, and naturally blond, rather than painstakingly highlighted, hair. And nowhere were these flawless looks more in evidence than in the audience of the latest show from the 10-year-old, and rather counterintuitively named, Swedish brand Acne.

The big draw of Stockholm Fashion Week, held last month, Acne's presentation of sleek tailoring, clever proportions, sexy shoes and perfect accessories offered a level of sophistication that was hard for other local designers to follow. But then, Acne is a sophisticated brand, developed from an unconventional company.

Acne was never supposed to be about fashion. When 38-year-old Jonny Johansson established the company in 1997, with three friends, the idea of the collective was to create a lifestyle by the production of desirable products in any category. "We didn't want to participate in fashion in the first place," Johansson explains. "We wanted to be on the outside. But, of course, you end up in the heat of it eventually."

His first role was to design a conference table for Acne's new offices, on the ground floor in a Stockholm new build. A month later, the magazine founder Tyler Brûlé spotted the table in the window and gave it a spread in Wallpaper*. That led them to wonder, "if we can design furniture, what else can we do?".

Lots, as it has turned out. Branding for international Swedish menswear designer J Lindeberg. Product design, which has included watches, a super-8 camera and a drum machine. Then there is the toy-making, the websites, the publishing, and even a virtual world. But the clothing line has generated the most headlines, almost from the start.

In 1997, jeans were not the multimillion-pound fashion product they are today. Acne was one of the first brands to see the market opportunity and filled it with just 100 pairs of unisex jeans. They were featured in Swedish Elle magazine and became the foundations of Acne Jeans, which now sells over 300,000 pairs of jeans a year, and led the creative collective to start thinking about producing other garments.

However, in a mistake that many young fashion brands make, Acne tried to expand too quickly. "After some bad advice, we produced a big collection, which left us overstocked," Johansson remembers. "It almost bankrupted us."

Luckily, and a bit oddly, in what seems to be the organic nature of the company, a friend with a film company offered them work as directors, in exchange for Acne shares. It grew quickly to form the Acne Film branch of the company, employees of which are currently working with director Ridley Scott in Los Angeles. Other pockets of the company include Acne Digital, Acne Creative and Acne Paper – the company's luxurious fashion magazine. All work together in a grand old former bank in the heart of Stockholm. "It is nice to be able to work without competition. That is why I like being based in Sweden, where really there are no large competitors, so we can work easily without comparison," says Johansson.

Of course, the fashion side of the company is now about much more than just jeans. In 1998, the now London-based designer Ann-Sofie Back joined Acne to design womenswear, while Johansson concentrated on menswear. "I was attracted to her rebellious attitude towards fashion, which felt really fresh at the time."

Back and Johansson set the design tone for the brand. The subtle luxury of the understated items originates from the ethos that the clothes should feel like someone's wardrobe. Cool and personal. The result is that nothing dominates anything else, yet every piece is effortlessly stylish. It sounds simple enough, but keeping fashion subtle yet aspirational is a difficult balance that is still lost on some design houses.

Today, womenswear is headed up by the designer Frida Bard, and menswear by St Martins graduate, Christopher Lundmann, while Jonny oversees everything "like a Swat team leader!". After 10 years, the full team, including retail staff, is now over 200. Each is apparently as enthusiastic about the brand as Johansson. Possibly the best example of the staff loyalty to Acne is that Jay-Jay Johanson, a pop star huge in Europe who recently played to 25,000 in Mexico, continues to work in one of the Stockholm stores one day a week, when he is in town.

Acne is sold in 650 stores in 45 countries, but later this year they are opening new stores in New York's SoHo and Paris's Jardin du Palais Royale , bringing the total of stand-alone stores to 10. New York's will be the first outside Europe, so although Johansson won't be able to oversee it as closely as he can the others, he is romantic about the opportunity. "Will it work for us? Who knows, but it is a dream I need to experience."

There is, of course, the question of the name, especially when you realise that "acne" means the same in Swedish as it does in English. "It was an acronym, and it stuck," Johansson says, smiling. "Sometimes I wished we had changed it, as it did cause us some problems."

Indeed. At first, Harrods didn't want to buy the brand because of the name, while Barneys forced them to print the labels tone on tone, unsurprisingly worried that their core customers wouldn't want a skin condition printed on their bottoms. Not that they seem to have those issues anymore. Students at the university in Stockholm recently asked the public what they associated with the word acne, and the majority spoke of the fashion brand. It is quite an achievement to change the energy and perception of a word.

Yasmin Sewell, buying consultant for London's Browns boutique, has been buying Acne since 2004. "Acne has replaced Helmut Lang in its directional simplicity and cleanness. It is leading the market in accessible luxury, and I can think of no more exciting brand in the world at the moment."

Of course, the price, as well as the design, is what sets Acne apart from many of its contemporaries. While you will often find it sharing department-store floor space with Martin Margiela's 6 line, Philip Lim, and Twenty8Twelve, Acne doesn't share their prices: jeans start at £120, must-have dresses at £150, and classic jersey T-shirts at £40.

In this month's American Vogue, the editor Anna Wintour talks of a revolutionary new market that "the fashion business knows as 'contemporary clothes', ie clothes that are designer but don't break the bank". Which not only sums up Acne perfectly, but also, if all recent talk of recession is true, will be the logical future of fashion.