Surviving local booksellers refused to admit much satisfaction in the failure of their outsized competition.
"We're all very sad when we see the demise of booksellers anywhere," Kepler's General Manager and Children's Buyer Antonia Squire said.
"It really is indicative of the state of consumerism right now. It's not that people aren't reading, but it's where they're choosing to put their dollars — outside the community.
"When a bookstore goes away, is there anything that replaces it? That's the question, and we're not sure of the answer yet."
While downtown Palo Alto retail has struggled with high turnover and falling rents in recent years, the market for office space is white hot, landlords and brokers said.
"The vacancy in office space is almost nil right now," said Fred Thoits, president of Thoits Bros., Inc. and a major downtown landlord.
"There's been a lot of money flowing into venture capital. Startups are scrambling, and they want to be downtown because they're attracting a workforce that wants to be downtown.
Thoits said office rents have spiked up to 25 percent since the first of the year and that there's "real competition for anything that comes up."
But with vacant storefronts up and down University Avenue, where will all the office workers shop?
Palo Alto is unique among suburban downtowns in having a large employee base, creating opportunities for retail, said Palo Alto developer and landlord Jim Baer.
"Very few downtowns have office tenants with spendable income the way Palo Alto does," Baer said.
"Facebook and Google started here, so you've got a lot of energetic guys that want to visit, have lunch, stay late for coffee. If they need flowers, they're going to get them here.
"That kind of stimulative characteristic is very rare in other suburban retail downtowns, so we're better off than most, and our sales per square foot reflect that," Baer said.
Dining and entertainment traditionally have done well here, but other retail categories have struggled recently. Responding to pleas from landlords, the City Council in 2009 amended the downtown zoning ordinance to reduce the size of the ground-floor retail zone.
The move to electronic distribution not just of books and magazines but of film and sound is a "for-real change in retailing" that is national — and has extra impact here because local residents tend to be early adopters, Baer said.
That change accounts for the demise of such national brands as Blockbuster, Virgin Records and Borders, he said.
"Those are really all under pressure from an appropriate and predictable technological shift," he said.
The recession also made things difficult for "lifestyle retailers" such as Z Gallerie, which vacated its large University Avenue space in early 2009.
The good news is that Apple is readying plans to move into the Z Gallerie space, and at least one local broker sees a pickup in downtown retail.
Menlo Park Realtor Sam Arsan said he recently leased the former site of A.G. Ferrari at the corner of Hamilton Avenue and Emerson Street, as well as the former Fashion Passion site at 425 University.
Arsan said he's also had three offers on the former Rococo kitchen showroom next door, at 435 University, which has been vacant for several years.
"Nobody has a crystal ball," Arsan said. "The retail market has kind of dragged a little bit behind the office market, but it's coming back."
Borders landlord Chop Keenan said he's considering various options for the looming vacancy, including building a glass atrium over the courtyard space.
"We'll see what the market tells us to do," Keenan said. "Retail is a tough business these days.
"If I can find a two-story retail user for 23,000 square feet, that's a good thing," he said.
It also would be possible to subdivide the space, with one tenant taking front-to-back in the portion facing University Avenue, and another tenant taking the interior ground-floor space, with access facing the rear parking lot.
"What we don't want to happen is for the thing to sit there empty.
"I hate to lose the book category, but time marches on."
Books Inc. CEO Michael Tucker said business at his nine Bay Area stores is up 5 percent over last year as the shops make extra efforts to focus on customer service and become community gathering spots.
Tucker, who has a shop at Town & Country Village, cited a recent non-book event that drew 120 people to his Opera Plaza venue in San Francisco — a discussion of composer Richard Wagner following a San Francisco Opera performance of a segment of the Ring Cycle.
"A group wanted a place to meet after the opera, so we set up chairs and ended up selling $2,000 in other stuff," Tucker said.
"A successful bookstore can be that kind of thing in the community."
Tucker called the Borders liquidation a loss to the industry.
"The unfortunate thing, from my personal perspective, is that 11,000 booksellers nationally are going to be out of work," he said.
"We've hired a number of people from Borders, and they are great booksellers."