Whitcoulls, the country's best-known bookstore, is reducing its offering of books as it searches for ways to make its stores thrive.
Its future appears to be increasingly in the sale of gifts, games and stationery.
The chain recently held sales with many quality books reduced to half price.
Multiple industry sources have told the Herald that Whitcoulls had decided to cut back on books and concentrate more on gifts and stationery.
A Whitcoulls spokeswoman, citing commercial sensitivity, said it was group policy not to provide comment or figures.
One publisher described the move as "really scary. We didn't see this coming. Everyone is very depressed. More than anything we need bookshops and if that infrastructure is weakened in this country too much, then we are all in deep trouble."
Bookshops are struggling to compete with online booksellers, particularly those overseas who sell books free of GST.
This is reflected by book sales data from industry monitor Nielsen. New Zealand sales fell by 8.8 per cent in the last year, which appears out of step with the United States, Britain and Australia, where sales were static or increased marginally. However, data for New Zealand does not include figures for Amazon or Whitcoulls.
Whitcoulls chose not to provide data after being bought in May 2011 by Anne and David Norman's company, James Pascoe Group. Although the lack of data from the big retailer made the overall picture incomplete, the trend appeared to be that book stores are selling fewer books - and that is forcing retailers to adapt.
Physical book sales through stores had declined "pretty significantly over the last 18 months", Publishers Association president Sam Elworthy said. Bookselling was going through a big transformation. "I think every retailer is looking at their options, at new ways of getting their business to flourish."
When the Normans bought Whitcoulls, book sales made up only 30 per cent of sales.
The Herald was told an attempt to boost book sales had failed.
"They put a lot of money in, restocked in books in a fairly big way and were quite bullish," a source told the Herald. "I think they have clearly said 'this ain't working for us', and have gone through a pretty big reduction in the range of books they'll carry [and] the suppliers they will deal with."
Whitcoulls allied themselves with e-book company Kobo and sold e-readers and e-books but pulled out of that some months ago.
Another publishing sector source said that although Whitcoulls still had a big brand presence as a bookstore, that wasn't working for them anymore. "You can't blame them if it doesn't work. They have to do something, they have such hugely important real estate and presence."
Craig Potton Publishing co-owner Robbie Burton said Whitcoulls was making it obvious they were not going to carry as many books. "It's a real shame. They have good management that has been trying hard. It is going to be hard for everyone if they reduce their offering," Mr Burton said.
"What I suspect is hammering them is not e-books, but online purchases of books."
Mr Burton said that being able to avoid GST by buying online from overseas companies was "insane. But there seems to be no political will to do anything about it."
Paperplus, New Zealand's other major chain of booksellers, is also making changes but marketing manager Lyle Hastings said he expected the number of titles to remain about the same.
Books made up just over a third of total sales and had increased slightly during the past year, Mr Hastings said. "The bookstore is not dead, not at all. Rather, the industry is adapting to suit customer behaviour." Mr Hastings said that meant making visiting a store more gratifying as well as developing online sales.
The company, which has 135 franchises nationwide, was working to integrate its websites and develop its loyalty system.
Last year New Zealand was the third-fastest growing English-speaking e-book market in the world. Sales of some fiction was as much as 50 per cent through e-books, but the market is dominated by Amazon, followed by Apple, Kobo and Google.
Physical booksellers compete against the likes of Amazon, Book Depository, Fishpond and other online vendors.
"It's not because people aren't reading books any more, they are," said Mr Elworthy, who is also director of University Press. "They are reading them in different ways. So the e-book growth is fantastic for publishers. Publishers don't mind where [people] are buying books or what form, just that they are buying them."
Kevin Chapman, of Upstart Press and past-president of the Publishers Association, said the take-up of the e-book was uncertain globally. E-book sales for popular fiction was strong but other genres showed buyers returning to print. "It's not linear." For most major overseas publishers at least 75 per cent of sales was in print.
"There are a lot of people around the edges of the industry making prognostications about the death of the printed book but people inside the industry aren't.
Richie McCaw, The Open Side, by Greg McGee, for example, was one of the biggest-selling local books of recent times, having sold more than 115,000 printed copies and 3500 e-book versions.