Does Borders Bankruptcy Signify the End of Physical Bookstores?

While not a surprise to anyone who had followed the book retailer's recent financial struggles, the official announcement yesterday that Borders Group had filed for Chapter 11 bankruptcy still caused a stir throughout the book publishing industry, as publishers, retailers, authors and consumers speculated about what this development could mean for the future of brick-and-mortar bookstores.

With the Chapter 11 filing, Borders CEO Mike Edwards also announced that the company would be shuttering 200 store locations nationwide.

The dramatic rise of e-book sales—according to the most recent figures from the Association of American Publishers, e-book revenue grew 164.8 percent in December 2010 compared to December 2009—is perhaps an easy factor to point to in an effort to explain Borders' closing of hundreds of stores filled with shelves of traditional ink-on-paper.

Michael Serbinis, CEO of Kobo Inc.—which partnered with Borders to power an e-book store integrated into Borders.com and to sell Kobo e-reading devices—blogged on the Kobo website yesterday: "While the e-book market is booming, the physical book market has started to feel some of the effects of digital growth. The news has been filled with challenges of book retailers around the world, most notably about Borders Group in the U.S." Serbinis went on to write that the Borders Chapter 11 filing would not impact Kobo nor its customers.

Kobo was just one of the e-reading devices that Borders chose to sell to its customers, instead of developing a single, proprietary device such as Barnes & Noble's Nook or Amazon's Kindle.

"... The shift is more toward online to the e-readers and the digital content," says Peter Wahlstrom, retail analyst, Morningstar Equity Research. "That's something that Barnes & Noble was relatively quick to embrace, and they built out their Nook platform, their own e-reader software platform and their own online digital locker, so to speak, where they could [store] customers' information and their purchases. So their customers have a reason to go back to Barnes & Noble. Amazon did the same thing with Kindle, and Apple certainly with the iTunes Store and the iPad as well. Borders was left as a distant third-, if not fourth-tier player and [was] really kind of late to the game for what is arguably one of the last remaining growth areas of the book-selling business."