The big chain booksellers were once the nemesis of small, independent book retailers. These days, however, those smaller retailers are getting a one-two punch from the big box booksellers and the Internet. A sluggish economy only makes a bad situation worse.

“The chains have been killing off the independents at the rate of three a week for years,” said Dan Poynter, longtime author, publisher and founder of Santa Barbara, Calif.-based Para Publishing Inc. “Now, the online stores are killing off the chains.”

While online book retailers are stiff competition for large bookstore chains, the owner of Quimby’s Bookstore in Wicker Park and Chicago Comics in Lakeview fears they may ultimately prove to be deadly for small, independent stores such as the two that he owns.

"That's been having a large effect on our business," Eric Kirsammer said. "I mean we do Internet sales, but not enough to offset the losses I think are attributable to the Internet [retailers]."

Online retailer behemoth Amazon.com Inc. is a formidable foe because it offers a huge selection, competitive prices and the convenience of online ordering. But for small storeowners like Kirsammer, it does not make financial sense to offer online ordering.

"The problem is that we specialize in these small 'zines that retail for $1 or $2, and on the Internet, it's hard to compete selling $1 or $2 items against people who are selling $50 items," he said, adding that he relies on stocking rare magazines, comics and books that other stores do not carry to draw in customers.

"Most of the stuff we're selling is the hard-to-find stuff, but if there's a book that we carry that Barnes & Noble carries or Amazon carries, unfortunately, people are probably going to buy from them," Kirsammer said.

There are some bright spots on the horizon for smaller book retailers. According to the American Booksellers Association, 115 new independent bookstores opened for business across 35 states in 2007.

"This is very good news and an indication of a growing trend among communities that are recognizing the unique contributions of local independent businesses," American Booksellers Association CEO Avin Mark Domnitz said in a press release.

The stores that opened were primarily focused on niche markets such as design, architecture, science fiction and mystery. However, not one of the new store openings was in Chicago or even in Illinois.

According to preliminary estimates from the U.S. Census Bureau, a relatively strong second half of 2007 resulted in bookstore sales of $16.8 billion, or a 1.1 percent increase for the year. According to the data, this was the first time since 2005 – the last time that a “Harry Potter” book was released – that bookstore sales increased for the year. In December, a month that was not particularly good at the chains, sales rose 2.7 percent, to $2.1 billion.

Meghan Worrell, an employee at one of three Powell's Bookstores Chicago, each of which has more than 225,000 books, mainly academic and scholarly in nature, said the slowing U.S. economy has definitely made 2008 a challenging year for the Lincoln Park Powell's where she works. The stores carry quality used rare books that are primarily academic and scholarly in nature.

"But we have good days and we have bad days," Worrell said.

While the current economic environment poses a challenge to even the most thriving big-box retailers, it can mean the difference between staying in business and calling it quits for local independent bookstores.

“The economy does affect us,” Kirsammer of Quimby's Bookstore said. “April was not a good month at all – in fact it was terrible – but … April was a bad month at a lot of places.”

Independent stores survive by offering specialty niche items that set them apart from the big chains, but they are still outdone and outmatched because the larger book retailers have created an inventory standard that is impossible to match on a smaller level, Worrel said.

"Because of places like Barnes & Noble and Borders, people have certain expectations of what a bookstore should be, and we just don't have that kind of database," she said.

Ed Devereux, owner of Unabridged Books in Lakeview, said his sales have declined gradually over the last three years, and he estimates that sales dropped 1 percent to 2 percent in 2007. Devereux attributes the sales decline in part to the increasing success of online retailers like Amazon.com, but said he believes there are underlying sociological and cultural changes at the root of it all. People today are much more likely to be surfing social networking sites and checking their e-mail on their laptops than reading a book, Devereux said.

"The other big thing is just the nature of how our city is changing – it's sort of like the strip-malling of the city," he said. "I think the neighborhoods have changed. People used to live and shop in their own neighborhood, but now it seems like everyone has a car and … there are all sorts of mini-malls. The idea of a walking neighborhood has changed, so I think, not only are people buying online, but foot traffic is down in general."

Still, Devereux maintains a positive outlook and said his store continues to attract a decent customer base with its vibrant shelf signs and well-stocked “remainder” sale sections that offer last year's hardcover bestsellers at rock-bottom prices.

"We still have healthy sales, and I think it's just a couple different things we're dealing with," Devereux said. "Of course, it's always nice when sales are going up, which they're not, but there's no danger of us going out of business – it's just a little more fun if you have increasing sales because, you know, you're not watching every penny."

The Book Cellar opened in Lincoln Square four years ago and owner Suzy Takacs said she has kept her business thriving by being involved in the local community. Takacs is a member of the Lincoln Square Chamber of Commerce and frequently has her store participate in local business events. In addition, The Book Cellar hosts regular local author nights at the store, which offers patrons a café and wine and beer bar, in addition to books.

"There are a lot of regulars, and sometimes it feels like I'm working at Cheers," Takacs joked. "A lot of customers are from Evanston because they don't have an independent bookstore there. I try very hard to meet our immediate neighborhood needs, but it takes more than a neighborhood to keep a business going."

Takacs said her sales have been good but attributes part of that to the fact that she is a new store.

"I haven't had a drop yet – each quarter has been better than that same quarter a year before, but it's a new business. You can't have a new business that doesn't grow, and it is growing, thank goodness," Takacs said. "I do worry about Amazon, and I do worry about downloadable books, but there are always tons of people who want to look at books and touch them. Still, as generations come up we need to keep up with the technology."

Amazon.com is growing by leaps and bounds. In 2007, the Seattle-based online retailer had a net income of $476 million, or $1.12 per diluted share. Sales rose to $14.8 billion from $10.7 billion the year before, and for 2008, analysts estimate earnings of $1.50 per diluted share.

Amazon’s stock closed Thursday at $84.52 a share, about the midpoint of its 52-week high of $101.09 on Oct. 23 and its 52-week low of $61.20 on March 3..

In comparison, financial results from bookstore retail chains Barnes & Noble Inc. and Borders Group Inc. have been lagging, hindered by the slowing economy and the subsequent challenging retail environment.

Borders, based in Ann Arbor, Mich., reported a net loss of $157.4 million, or 17 cents per diluted share, in 2007. Analysts estimate earnings of 14 cents per diluted share in 2008. The company has posted large losses in the last two fiscal years and in March, Borders announced it was putting itself up for sale. On May 22, Borders' main competitor Barnes & Noble confirmed publicly that it is seriously investigating the possibility of purchasing the struggling company.

Borders stock has seen a drastic drop over the last year. It closed Thursday at $7.30 a share, down $14.48, or 66 percent, from $21.78 a year ago.

“The book industry doesn't appear to be a likely place to find attractive long-term investments," said Joseph Beaulieu, a Morningstar Inc. analyst who covers Barnes & Noble, Borders and Amazon.com.,  in an April 11 report. "It is capital-intensive, slow-growing, and extremely competitive."

According to Beaulieu, Morningstar recently cut its fair value estimate for both Borders and its competitor Barnes & Noble based on its expectations that 2008 "will be tough for retailers."

Barnes & Noble is fairing far better than Borders, although the New York-based bookstore did have a drop in profits last year. Barnes & Noble earned $135.8 million, or $2.03 per diluted share, for the year that ended Feb. 2. This compares with net income of $150.5 million, or $2.17 per diluted share, in the previous year. Analysts polled by Zacks Research Investment Inc. foresee a dip this year and estimate earnings of $1.80 per diluted share. Sales for the most recent year rose to $5.4 billion from $5.3 billion the year before.

Like Borders, Barnes & Noble stock has dropped in price over the last year. It currently trades at around $29.58, down $12.77, or 30 percent from $42.35 a year ago.

Still, Beaulieu said Barnes & Noble has done an excellent job of implementing successful sales and marketing strategies in a highly competitive industry.

"These efforts have paid off with inventory turns that are faster and gross margins that have been consistently 300-400 basis points higher than Borders," Beaulieu said.

Although big businesses are looking to online sales for future profits, for now, smaller bookstores will continue to rely on the customers who want to enjoy the physical experience of going to a bookstore and perusing the shelves for good finds and hidden gems.

"If I were to choose one or the other, I'd rather have these [independent] books stores," Ravenswood resident Caden Howell said, while browsing at Powell's in Lincoln Park. "I used to live in Schaumberg where there was a Borders and a Barnes & Noble, and that was it, so it's nice to be able to come to stores like this."