COLLINS Street's prized heritage terrace houses narrowly escaped disaster after a fire started in the Little Legs gift shop on Wednesday.
Owner Karen Purkis-Lester said a neighbour and a patrolling Kiama Council ranger spotted the smoke and alerted Fire & Rescue NSW, who arrived at the scene at about 6.20am.
Mrs Purkis-Lester later arrived to find a fire had destroyed the toilet she had been using as a storeroom for her display stock.
Between $5000 and $7000-worth of children's furniture and toys had been stolen.
"It looks like they've jimmied the lock open and used tealight candles to avoid using the fluorescent light," she said.
"They've put the candles on to top of a shelf unit and at some point, it's fallen over."
However, she said it could have been far worse.
"The fire brigade said we were lucky it never went into the the roof because it would have completely gone," she said.
Mrs Purkis-Lester and her husband, Grant, have started the clean-up operation.
The couple moved to Kiama Downs from Britain five years ago.
"Some stock took so long to source - you try to be different to everyone else and then this happens," Mr Purkis-Lester said.
"Our stock's gone and we've got this mess and no facilities - it's not good at this time of year," Mrs Purkis-Lester added.
Lake Illawarra Police Sergeant Jason Harrison said police were still investigating possible suspects.
Anyone with information can contact Lake Illawarra Police on 4232 5599 or Crime Stoppers on 1800 333 000.