Future's looking bright on the tiles

Fired Earth are doing for the tile what Pret A Manger did for the humble sarnie. Take a familiar, unglamorous product supplied without imagination by chains or gloomy independent outlets, add quality, inject flair, enthuse the staff, use a catchy name and you have a high street revolution. Well, not always. For every Pret A Manger success, sadly, there is a Sock Shop flop.

Fired Earth are doing for the tile what Pret A Manger did for the humble sarnie. Take a familiar, unglamorous product supplied without imagination by chains or gloomy independent outlets, add quality, inject flair, enthuse the staff, use a catchy name and you have a high street revolution. Well, not always. For every Pret A Manger success, sadly, there is a Sock Shop flop.

But unlike the ubiquitous sandwich chain - now even on Wall Street - Fired Earth is always likely to remain a small-scale operator. After all, how many times a year do you buy tiles compared with lunch?

Yet these are good times to be making waves in the home improvements sector. Thanks to Changing Rooms, other property makeover TV shows and the appalling cost of moving house, the British have never shown more interest in or spent as much sprucing up their homes. Which is just as well because Fired Earth is not cheap, in fact, it is defiantly up-market.

Builders still blanch when you tell them the tiles for the new bathroom are to come from the chain. And a chain it is, with around 40 owned and franchised stores in the UK and more on the way. As well as tiles, Fired Earth also sells floor coverings, fabrics and bathroom fittings.

The mini-empire began 15 years ago from the back of a van driven by founder Nicholas Kneale and full of terracotta tiles. He paid £1,000 for the Fired Earth name, at the time his biggest single outlay. That was a shrewd investment.

Then, increasing numbers of Britons returned from holidays in southern Europe inspired by the beautiful, high-quality tiles they saw in their hotels and the villas they rented. Sales took off and Mr Kneale opened his first store in west London's upmarket Holland Park. Other outlets followed quickly until the recession and property crash of the early Nineties brought expansion to a halt.

In economic terms, the tiles fell off the wall. But while other retailers were trying to pick up the pieces Mr Kneale bided his time. Between 1993 and 1998, no new stores were opened. A brief spell as a quoted company ended in the summer of 1998 when Fired Earth was taken private through a £20m management buyout, backed by the Prudential's private equity arm PPM Ventures.

The deal allowed Mr Kneale to take out hard-earned capital, reducing his holding from 50 per cent to 19 per cent. The buyout also allowed the business to take a deep breath so strategic decisions could be made, free from the short-term priority of worrying about the share price.

A new chairman, the former Tarmac chief operating officer, John Lovering, was drafted in by PPM and former Next and Laura Ashley executive Fraser Allan became finance director, and later managing director. Mr Kneale, having created the company, was shifted into a visionary role as creative director. His latest project is developing Fired Earth's bathroom collection brand H20, which will be available in up to six stores by the end of this year.

Last year, sales grew from £13.5m to £15.2m, with pre-tax profits rising almost by half from £1.3m to £1.9m. This year is looking just as strong, with sales likely to hit £18m and profits similarly increased. Mr Allan believes the company is now worth up to £40m. At double its buyout price that rate of return allows a venture capitalist to sleep at night.

Mr Allan, unlike many company executives backed by venture capitalists, has nothing but praise for PPM who could not have been more supportive, he says.

Because PPM is part of the Pru, they can take a slightly longer term view than churn-and-burn private equity specialists. Mr Allan says there is no immediate pressure from PPM for an exit, and when that does come, it will be a trade sale, not a return to the stock market.

"We are too small a business for a full listing," he says. "It brings all the disadvantages and none of the benefits." He is also aware of the danger of growing too fast and losing the company's niche focus, a trap easy to fall into when short-term shareholders are clamouring for profits and dividend growth.

Mr Allan does not see much scope for further growth in the UK. Perhaps there will be a further 10 stores, he says. There will definitely not be a Fired Earth in every high street. Abroad is a different matter.

There are nine franchised outlets in Scandinavia and, Mr Allan believes, scope for other markets in Europe and North America. The trick is getting the formula right for each market. The French, for example, would not dream of shopping for their tiles in a small outlet of the size typical in Britain. The Englishness of Fired Earth should help, particularly in America, with only a handful of players in the niche the company is eyeing. Mr Allan envisages 50 stores in America, the same as in the UK.

Niche is a word that comes up often in conversations with the Fired Earth top brass. They do not want to be big. The trick, they say, is to have a small number of stores so you never get thought of as a chain. They want customers to feel they have "discovered" Fired Earth as the ideal place from which they can tile their bathrooms, kitchens or conservatories. No store is the same and each manager is encouraged to stamp their personality on their outlet. "We don't use retailers, we use characters," is Mr Allan's slightly precious description.

The ranges vary enormously, in keeping with this "when is a chain not a chain?" strategy. On the Fulham Road and in Manchester, more of the modern, sexy metal and glass tiles are stocked. In sedate Tunbridge Wells, the more traditional terracotta ranges dominate.

Mr Allan insists there will be no compromise on quality - or on price - and that the market will remain those high-spending A and B social groups. Fortunately for Fired Earth, no direct rival has yet muscled into the sector. There probably is not room for more than one.

But if the experience of other once-distinctive retailers has shown, when the big boys cotton on to a successful formula, they will soon be looking for their slice of the action through cut-price imitation.

Fired Earth, say its executives, will remain light on its feet. As well as H20, the company is planning a new format, country warehouses stocking lines such as lighting, upholstery and crockery. Typically, these would be converted farm buildings such as barns or mills in the outer suburbs or countryside. The first pilot is a 4,000sq ft farm building (compared with just 1,000sq ft for most of the existing stores) near Orpington, Kent, with a second opening next month in Bedfordshire. A further three are planned next year.

But there will be no headlong rush into the mass market. Fired Earth has thrived on its exclusive, pricey, slightly élitist image. Tiles 'R' Us it most certainly is not.