AYLESFORD, England (Reuters) – Homebase, Britain’s second-biggest home improvements retailer behind Kingfisher’s B&Q chain, plans to step up its focus on decorating and services as it battles to win share in a struggling marketplace.

The chain, owned by Home Retail Group , said on Monday it was launching a range of own-brand interior decorating products called Home of Style and it would test new product areas like carpets, as well as offering services such as painting and decorating and lawn maintenance.

Managing Director Paul Loft said it was aiming to capture former customers of Focus DIY, which collapsed earlier this year, and differentiate itself more clearly from B&Q, which also aims to appeal to tradesmen.

“We believe this business has got clear recovery potential,” he said on a tour of a store in Aylesford, southeast of London, which has been rebuilt following an arson attack in May 2010.

“Some of that is contingent on the marketplace and the economy, obviously. But … we’re developing new ways of investing in the business that means when the change in the economy comes we will be well-placed and we should be able to grow significantly.”

Many retailers, particularly those focussed on “big ticket” areas of spending like kitchens and bathrooms, have been hit hard as shoppers cut back amid rising prices, muted wages growth, government austerity and a fragile housing market.

Homebase last week reported a 3.1 percent fall in second-quarter sales from stores open over a year.

Spokesman Chris Wermann said the chain’s revamp would be funded from within Home Retail’s existing 150 million pounds a year of capital spending.

It will include improving ranges, like mirrors, across its 342 stores in Britain and Ireland, and upgrading around 150 mezzanine floors focussed on “big ticket” areas of spending over three years at a cost of about 500,000 pounds apiece.

Full store upgrades will require more experimentation, Loft said, adding Homebase had hired design consultant Dalziel and Pow to help it refurbish a store in Maidenhead, west of London, which will be completed around spring 2012.

At the Aylesford store, Homebase has reduced selling space for repair and maintenance products to make room for more decorative ranges, and also harnessed new technologies, such as a touch-screen planner that allows shoppers to upload pictures of their rooms and see how they would look in different colours and with different furnishings.

The new Home of Style range will include 2,500 products spread across departments like lighting, cooking and bathrooms. It will be complemented by more upmarket ranges in kitchens and bedrooms, as well as products next year from the Habitat UK furniture brand which Home Retail bought earlier this year.

To be a “one stop shop” in decorating, Homebase would look at selling carpets and rugs, Loft said, despite particularly tough trading in those markets, with industry leader Carpetright issuing a string of profit warnings.

“Clearly we need to find a way of making money in carpets,” Loft said, adding Homebase was so far only testing selling carpets at one store in Watford, north of London.

Homebase made an operating profit of 47.6 million pounds on sales of 1.55 billion in the year ended February, accounting for about 19 percent and 26 percent of Home Retail’s total profits and sales respectively.

Kingfisher is due to report first-half results on Thursday.

(Editing by Greg Mahlich and Jane Merriman)