Is this the final chapter for traditional bookshops?

As Borders UK's problems mount, the future looks grim for book retailers, faced with competition from supermarkets and the internet

Just four months ago, Philip Downer, the chief executive of Borders UK, was hailing the bookseller's management buyout. "We are delighted that we have been able to secure the future for Borders," he said in July, after the deal was struck with the backing of the retail restructuring specialist Hilco. But that future is now looking bleak for the 45-store chain, which could be placed into administration as early as today.

Last night, Borders UK was not accepting orders on its website, and the company is thought to have lined up the accountant BDO as administrator if an 11th-hour rescue deal cannot be finalised. A spokeswoman for BDO said: "We have not yet been appointed, so we are not in a position to comment." A spokesman for Borders UK said: "Management continue to review all their options, including a sale of the business."

But Borders UK is far from an isolated example of a struggling bookseller. In January 2008, the discount chain The Works went into administration, although it has emerged as a 254-store operation under the ownership of Endless, the Leeds-based private equity group. Even the high-street stalwart Waterstone's, which has more than 300 branches, reported a 3.4 per cent fall in underlying sales for the 18 weeks to 29 August.

For a number of years, Britain's bookshops have been haemorrhaging sales to Amazon, the online giant that launched in the UK in 1998, and the supermarkets. They have also suffered from the end of the Harry Potter gravy train in 2007.

According to the Booksellers' Association, the market share of the large book chains declined to 34 per cent in 2008 from 38.6 per cent in 2004, while internet players more than doubled their share from 6.6 per cent to 13.4 per cent over the same period. High-street chains now also have to contend with the threat of electronic book readers, most notably Amazon's Kindle device, taking more money away out of their tills. In the wake of Borders UK's troubles, serious questions are again being asked about whether there is a place for traditional shops selling books on our high streets.

However, the fact remains that loss-making Borders has had a trolley-full of problems. For instance, the company has suffered from credit insurers scaling back their cover for its suppliers since about the spring of 2008.

Borders UK's auditor, Ernst & Young, stated the need for the continuing availability of credit insurance when it cited "material uncertainties" about the group's ability to continue as a going concern in its latest annual report, published in July.

Greg Hodge, the non-food research director at Planet Retail, also says that Borders UK, which has Starbucks outlets in some of its branches, has been hampered by its out-of-town locations. When its former parent company, Borders US, was launched in the UK in 1998, it started a land-grab of big stores, growing to a peak of nearly 80 premises.

Mr Hodge says: "The out-of-town locations were an American idea that were never really suited to the UK." Borders US sold its UK subsidiary to Risk Capital, the private equity firm of Luke Johnson, the outgoing chairman of Channel 4, for £10m in September 2007. Mr Hodge said: "Why would you drive five miles to sit and read a book in Starbucks inside Borders? It is just not practical."

Robert Clark, the senior partner at Retail Knowledge Bank, also points to a slump in sales per square foot at Borders UK stores over the past decade, although this can be partially explained by its shift towards larger outlets. In 1999, Borders UK had sales per square foot of £305, but this had tumbled to £145 in 2008. Even allowing for the larger-than-average stores, Mr Clark said: "Their sales densities look to be seriously low."

However, there is no doubt that the supermarkets and Amazon have inflicted damage on physical chains such as Borders UK. While the big grocers typically focus on the best-seller charts in their supermarkets, the likes of Tesco and Asda have a huge range of books for sale online.

It is also true that not all booksellers are suffering. Nick Leitch, a director at Endless, which owns The Works, said: "Our like-for-like sales are up this year. Our business is performing pretty strongly, people are still spending money, but there is a flight to value. Kids' books are still going really well, as are food and drink books."

It is thought that Endless looked at buying Borders UK in the summer before Hilco completed the MBO deal. But Mr Leitch declined to comment on rumours that the private equity firm was being asked to reconsider its position concerning parts of the business or the chain as a whole. The academic bookseller Blackwell is also understood to have enjoyed robust trading this year.

Overall, Mr Clark firmly believes that if a bookseller has knowledgeable staff and tailors its services to the local community, for example with promotional events or store managers choosing a proportion of the books that are sold, then there is still a place in Britain's high streets for physical booksellers. "There is a place for a multiple chain on the high street and a future for that browsing market," says Mr Clark.

Certainly, if Borders does collapse, Waterstone's and WHSmith, the sector's two biggest chains, could benefit from extra capacity in the market or picking some of its weaker rivals' best sites. As Mr Clark says: "The in-town browsing market is embedded in the consumer's psyche, compared to the out-of-town offer."

No doubt high-street booksellers are under pressure, but they look set to remain a fixture on the high street for some time to come.

Borders UK: Tale of woe nears conclusion

*Borders US launches UK subsidiary in 1998.

*Made pre-tax profit of £4.19m for the year to 25 January 2005.

*Posted pre-tax loss of £10.2m for year to 3 February 2007.

*Sold to Risk Capital Partners for £10m in September 2007.

*David Roche steps down as chief executive in January 2008. He was replaced by the current chief executive, Philip Downer.

*Borders secures a £23m asset-based loan from Icelandic bank Landsbanki in February 2008.

*Landsbanki collapses in autumn of 2008, as part of wider Icelandic banking crisis, but retailer denies trouble.

*In December 2008, supplier letter confirms long-standing speculation about scaling back of credit insurance for retailer's suppliers.

*Appoints restructuring firm RSM Bentley Jennison to review store portfolio in spring of 2009.

*Hires the corporate finance house Clearwater to advise on sale in May.

*Completes management buyout deal with Valco, the investment arm of Hilco, in July 2009.

*Confirms plans to close its Books Etc chain in September 2009.

*WHSmith reported to have walked away from the potential purchase of about 20 stores after Borders put up for sale in November 2009.

*On the brink of administration this week, if rescue deal does not materialise. Borders UK thought to have lined up BDO as administrator.