Digital Divide Propels Barnes & Noble Past Rival

The digital divide has created a chasm between the nation's two biggest bookstore chains: While Borders is trying to hold off bankruptcy, Barnes & Noble announced its best holiday sales season in more than a decade.

"Thrilled" was the word Barnes & Noble Chief Financial Officer Joseph Lombardi used to describe the mood at his company. Holiday sales at BarnesAndNoble.com were up 78 percent over last year; store sales increased by almost 10 percent. While sales of hardcover books were better than expected, Lombardi made it clear that Barnes & Noble's popular e-readers, the Nook and the Nook Color, were behind the good news. James McQuivey, an analyst at Forrester Research, says the Nook is a popular reading device, but selling it at the chain's stores gives Barnes & Noble an added advantage. "People buy the Nook at retail and then they go and buy digital books, but because they're in the retail location, they might pick something else up while they're there," he says. "So the good residual feeling that Barnes & Noble has after [the fourth quarter of] last year, it's all because of the foot traffic that the Nook drove. That's their salvation right now." While Barnes & Noble was developing the Nook, Borders was already having financial problems, leaving it ill-prepared to make the investments needed to meet the challenges of the digital age.