Young John Stephen — he’s 28 but looks more like 17 — practically owns Carnaby Street,” reported the American journalist John Crosby in the Evening Telegraph in 1965. “ ‘England leads the world in young people’s fashions both female and male,’ says young Stephen in his rolling Glasgow burr which has a strong Cockney beat underneath. “Buyers from American department stores come here and are absolutely astounded at what is happening. Why — they say — is this happening here and not in America?’ ”

John Stephen, the sixth of nine children, came to London from Glasgow in 1952 and took his first job in the military department of Moss Bros in Covent Garden. His way to Carnaby Street, though, was lit by the photographer-turned-retailer Bill Green. Green was a figure photographer who worked on near-nude studies of muscular males. To protect against outrage and arrest in an austere decade, he covered his models’ modesty in tiny briefs and worked under the name of Vince. When fans of his work began asking where they could buy such skimpy apparel, he began a mail-order retail outlet, soon moving to premises in Carnaby Street — then an undesired and seldom-visited back alley full of abandoned warehouses — with his pseudonym as the shop’s name.

Stephen worked as an assistant at Vince, which imported the tight black sweaters of the Parisian Existentialists and sold them for an astonishingly expensive £7 apiece. The shop also stocked shirts in yellow, purple and scarlet, building a reputation among the theatrical, artistic and then almost invisible gay community — and a sniggering fame among black-cab drivers.

In 1957 Stephen opened his own shop on the first floor of small premises on Beak Street, soon moving to 5 Carnaby Street, where he would make up his designs in a workshop at the boutique’s rear. Much more than Green, Stephen had an unquenchable ambition and a sharp business sense. He knew outlandish clothes could sell — and for a good price — but he knew also how to make them faster and cheaper, and never to let anything remain in the window for too long. More importantly, he knew that such clothes would not be seen as “camp” or “queer” for much longer. By 1961 he had four shops on the street, a number that would grow to nine by 1967, bringing him immense wealth.

The explosion of Carnaby Street was pivotal to Swinging London and the new youth tribes that sprang from the end of postwar austerity. In the early years, the burgeoning street was claimed by the Mods, who sought sharp Italian suits and shoes. The impact of the fashion was such that even the Daily Mail ran a series entitled “How to Look Mod” in 1963. By the next year, though, the Mods had fractured violently into Mods and “Hard Mods”, the former looking for a more flamboyant, psychedelic style, the latter keeping the bespoke faith and fighting with both Rockers and any other aberrant strain of Mod.

In 1965 Radio Caroline was illegally broadcasting to 7 million of the nation’s young people, at last giving them access to the music they craved. Stephen’s shops played the latest singles at maximum volume, and provided a place to meet and be seen as well as shop. Pop stars thronged Carnaby Street, along with press photographers: a reporter from Fabulous magazine reported, on one day in October that year, that he had run into members of the Who, the Yardbirds, the Pretty Things and the Hollies drifting in and out of Stephen’s boutiques. Diana Vreeland, the Editor of American Vogue, declared that the city’s boutique-based designers were the most important and imaginative force in world fashion.

Stephen produced many firsts: mini kilts for men, elephant-cord low-slung trousers, Aertex T-shirts, double-breasted velvet jackets, kaftans with flares made from curtain material. He had been the first, too, to import Levis from America, and sold them at five guineas a pair. Despite having to explain to buyers that they would shrink in the wash, he found it hard to meet demand.

Carnaby Street grew and transformed. Shops there now sold shoes, accessories, funky furniture and all manner of tat. Lord John, Topper, the Pallisades Boutique, the Carnaby Cavern and the wordily eccentric I Was Lord Kitchener’s Valet competed with Stephen’s shops such as His clothes, Domino Male and Paul’s. One, Mates, soon became a chain, and its owner Irvine Sellar became a pretender to Stephen’s crown as King of Carnaby Street. By the age of 32 Sellar had 24 shops. While Stephen had always catered mainly to the “male peacock”, Sellar was the first to sell male and female clothes in the same small boutique. When the idea worked, it became clear that the rules had changed once again.

Stephen was wise, then, to take Carnaby Street abroad. His shops quickly dotted America, Canada, Sweden, Norway and West Germany. In Rome, Oslo and Ischia the shops were renamed Carnaby.

At 20, Stephen had bought himself the first of several Rolls-Royces; the marque’s first sale to someone so young. He was regularly stopped by the police and asked: “Is this your father’s car?” As his empire grew he bought homes in Cannes and Marbella, and Stephen and his white German Shepherd, Prince, were well-known diners at the Mirabelle and the Ivy, and regular visitors to fashionable nightclubs such as Danny LaRue’s in Hanover Square. But the heyday of the street he had transformed was about to end.

By 1970 the British high street had absorbed his revolution, leaving only tourists in the former fashion Mecca. Anthony King-Deacon’s “Men’s Fashion” column in The Times announced: “Today, Carnaby Street is like a film set. It has the façade of hysteria and wild activity but it has no guts left . . . the merchandise has lost its life. Fashion, which used to be its prerogative, has now outgrown the street.”

Sensing the change, Stephen had ventured into wholesale, opening a factory with almost 100 employees in Glasgow, and signing a contract with the South African company Rex Trueform, which exported worldwide. At home, though, tastes were regressing to a more conservative look. Trying to retake the initiative, Stephen’s company took out press adverts promising sensible, classic lines on “the sober side of Carnaby Street”. Far less sober was his silver suit, showcased the following year. Although it left the midriff bare, it came with radiation insurance up to 1,500 guineas. Everyone would be wearing them by 2000, he assured. The company’s big-budget advertising hoardings at the 1970 World Cup won rather better attention.

The company went public in 1972, but from 1974 it began to run at a loss and continued to slip. In 1976, with crumbling share values and the phrase “troubled boutique chain” haunting his company in every Fleet Street business column, Stephen resigned on health grounds. One year later, punk was in full spate, the only fashion was anti-fashion and the sort of clothes sold in Stephen’s stores were not just outmoded but despised. The company was bought by Raybeck, the owner of the Lord John chain which had been one of Stephen’s earliest Carnaby Street rivals.

Stephen returned with a chain called Francisco-M, with shops in Queensway and New Bond Street selling fashion from Italy and France. He later expanded into franchising, bringing Lanvin for men to the UK, with a boutique in Knightsbridge. He found success in this until 2002, when ill-health forced him once again to retire. The costume department of the Victoria & Albert Museum holds his complete archive and has held a number of retrospective exhibitions.

John Stephen never married. He is survived by four sisters and two brothers.

John Stephen, fashion designer and entrepreneur, was born on August 28, 1934. He died on February 1, 2004, aged 69.