How could this be?

Unknown to most of its loyal customers, the store was part of the collapsed 260-store REDgroup Retail, which went into liquidation in February. By March, 37 stores in its Angus & Robertson chain and one Borders store were earmarked for closure, with the loss of 321 jobs. By June, with no buyers found, the last nine Borders stores in Australia went, bringing the total closed to 64. And in July came the Readers Feast demise.

But this is not just a Melbourne, or even Australian, issue - it's a global problem. In the past six years the number of bookshops in the UK has halved, with almost 2,000 closures.

In the US, Borders, the nation's second largest bookstore chain with 640 outlets, filed for bankruptcy in February, and announced 200 stores would close. More have since been earmarked for closure.

It's not only big bookstores - in 2009 America's oldest gay and lesbian bookstore announced it was closing after 41 years. And in London's Notting Hill, local poets and writers have tried to save the iconic tourist destination bookstore where Julia Roberts met Hugh Grant in the film Notting Hill.

Nor is it just a Western problem: Fengrusong, a well-known private bookstore in Beijing, closed in June. Chen Dingfang, general manager of the Xooyu Bookstore in Guangzhou, was quoted as saying a cut-throat price war between online retailers was the last straw for Fengrusong. 'The no-holds-barred competition has squeezed the living space of physical bookstores,' Chen says.

Yan Bofei, chairman of Jifengshuyuan Bookstore in Shanghai, says bookstores are a vital symbol of the country's diversified culture and values. 'Many Chinese like visiting bookstores, strolling through the aisles of bookshelves. The disappearance of bookstores will wipe out an interesting part of their lifestyle,' Yan says.

At the Melbourne Writers' Festival, held over 10 days from late August to early September, 'The 22nd Century Bookshop' was scheduled as the last session on the last day. It drew a sparse crowd. And while Kate Eltham of if:books, a think tank for book futures, outlined a dystopian vision of the future in which the web becomes the world and thoughts are sent direct to our brains, the panellists appeared to have trouble envisaging what bookstores would be like next year, never mind next century.

While Eltham gave her talk direct from her MacBook, Tim White, of speciality store Books for Cooks, admitted he had no mobile phone and read from his journal. Nonetheless, his store goes online later this month. He attributes its success to finding a niche - the only one of its kind in Australia and one of just 14 in the world, it is a tourist destination - and predicts it'll be shops which do so that'll survive.

'Another 35,000 cookbooks are published in English every year. People need some sort of filter,' he says, adding that readers value expertise.

White sees the possibility of specialist booksellers also becoming specialist publishers. 'Technology is allowing me to bridge that gap,' he says. It's a gap Australian franchised chain Dymocks has just announced plans to fill. Its chief executive, Don Grover, who told the panel that retailers who do not adapt will follow the REDgroup out of existence, says the company will bring Australian authors to print or e-books through its D Publishing network, beginning next month.

'The 22nd Century Bookshop' was a traditional chairs-on-the-stage panel, but over the previous 10 days the festival organisers had made strenuous efforts to attract new and younger readers, with city walks, music events at a downtown club, and culinary feasts taking their place in the schedule alongside the traditional panels and two-person onstage chat.

The previous Friday night American writer Tess Gerritsen, one of the big names in crime fiction, had worked the audience between band numbers. Even without a bar, the host of a popular television rock quiz show and house band The Bamboos had the place humming. 'Friday Night Live, festival guests, no safety net,' read the programme notes.

Programme manager Jenny Niven says the festival competes for audiences with Melbourne's vast array of other events. 'So we have to be quite creative in what we do.'

And the Melbourne festival is unusual in that one-third of its audience is aged under 35. It is these ticket buyers who comprise most of the audience for non-traditional events such as leading illustrators rendering music in images projected on the wall of city venue Toff in Town; or a twilight walk through the city's backstreets with a typographic designer, to reveal how letterforms reflect and influence society.

There were poet-performers from the Edinburgh Fringe, and storytelling and Spanish food in a celebration of the books and cuisine of MoVida, 'Australia's best Spanish restaurant'. And the influence of television was evident in the free Sunday afternoon event The Victorian Premier's Literary Awards Gameshow Extravaganza.

'There are nearly 400 people involved - authors, chairpeople, translators - there is a huge amount of diversity contained in that, so it's not fair to limit their options to two people sitting in chairs,' Niven says. 'What we are doing is in addition to all the standard sessions. There is a lot of media attention around the innovative, alternative programming, but that is in addition to everything else.'

It is underestimating the younger members of the audience to suggest they are interested only in the alternative programming, she says. 'The younger audience perhaps takes more risks in their choices, for example they'll see authors they may not have heard of, go for the topic rather than the name.

'Last year 50,000 people attended and one of our goals is to continue to grow the size of the audience,' says Niven.

It is too soon to say whether that has happened this year - the figures are not yet collated - but it is an ambitious aim at a time when the global economic downturn and cheaper online book sales mean bookstores, in Melbourne and around the world, are closing.

At another event on the future of bookstores, panellists speculated the growth in e-books might mean that readers, lacking human contact when they buy, might have a greater appetite for festivals that bring them face-to-face with authors and other readers.

But Niven says the symbiotic relationship between festivals and publishing houses, which supplement festival budgets by touring their writers at festival time, could mean testing times ahead.

'Different writers' festivals have different relationships with booksellers and will be affected differently by the impact on sales,' she says. 'But in Australia we rely on our relationship with publishers. If they no longer see festivals as worthwhile [for sales], there is going to be trouble.'

Festivals will have to confront this: perhaps a ticket price that includes a book download or sales of e-books at festival bookstores, rather than just hardcopy books.

'Everybody is finding new ways to cope with the changing markets, the way we read is changing and it is all doom and gloom,' Niven says.

'Maybe the newer, younger readers are drawn in by the technology because kids are very adaptable. But I don't think any of it is having an impact on people who want to read good stories.'