Both are correct. However, Example 2 flows better and is therefore the better choice to make if it's your writing.
In Example 1, we spend the first line knowing a proper name for an object that we haven't seen:
Hilary Hummingbird- Smyth’s “Bonnets and Bows” [what is this?] was, without a doubt, the prettiest shop [oh, it's the prettiest shop], ...
as compared to
Hilary Hummingbird- Smyth’s shop, [oh, she has a shop?] “Bonnets and Bows”, [and it happens to have a name] was without doubt the prettiest [and it's the prettiest] on the Parade, ...
In the first example, you're mentioning the fact that the object is a shop among the properties of the shop. That's not incorrect, but it's confusing. It makes more sense to first introduce an object that's a shop, and then list its properties.
Now, none of that fixes the fact that the sentence is a run-on with too many commas. I would put a period after 'Parade', regardless of which option you choose:
Hilary Hummingbird- Smyth’s shop, “Bonnets and Bows”, was without a doubt the prettiest on the Parade. What the crooked, half-timbered cottage lacked in symmetry it made up for with its charming, old world quaintness.