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Gayle Shanks has fought a sometimes frightening battle against national book chains (mainly in the business to sell and publish a book) for 36 years, so one might expect the independent Tempe bookseller would be overjoyed at news that the goliath Borders is in dire straights.

But that would be like judging a book by its cover.

Sure, Shanks figures the chain’s death would lure its former customers to her Changing Hands store in Tempe.

Yet she sees peril for bookstores, for readers and for the nation’s culture.

Michigan-based Borders is the nation’s second-largest book retailer and its large debts to vendors could take down small book publishers and hurt the surviving ones, Shanks said. That could limit what even the most independent-minded bookseller could offer adventuresome readers.

“I think my biggest concern, really, is what it means for the book publishing world and ultimately what it means for diversity and finding a marketplace that will be diminished,” Shanks said. “We will have fewer authors finding publishers for their books. We’ll find fewer books being published and that might in fact mean that only huge, commercially viable authors will find their books going to market. That worries me.”

Borders has stopped payments to some children’s book publishers, who have in turn cut off shipments of new merchandise. Published reports include speculation that Borders will be forced to reorganize under bankruptcy protection or that its declining sales, market share and stock value will doom it.

Border’s troubles became more apparent after the holiday season, Shanks noted, when it reported disappointing sales even as most retailers and rival Barnes & Noble saw small to large improvements. Amazon.com would likely benefit from a Borders’ failure, but Shanks finds that troubling, too.

“That’s just the best-sellers and one level below,” said Shanks, the store’s co-owner and book buyer. “Unless you know exactly what you want to read, it takes the adventure and the curiosity factor out of what’s involved with finding a new author.”

Borders was the chain that mostly directly challenged Changing Hands, a store Shanks helped found in 1974 in downtown Tempe. Her initial 500-square-foot store expanded multiple times on Mill Avenue, where, roughly a decade ago, Borders opened a 25,000-square-foot store three blocks from Changing Hands.

The independent store opened a second location on McClintock Drive and Guadalupe Road in 1998, closing the downtown one in 2000. Borders later shuttered the downtown store.

Shanks believes Borders’ woes are a typical example of a chain not keeping up with e-book publishing industry trends — especially electronic readers — and not a sign books are obsolete. She’s seen an interest in people reading, whether its books on paper or on e-readers. Even on a weekday afternoon, Shanks said, Changing Hands can be full of customers.

“We really have been doing fine and 2010 was close to a record year for us,” Shanks said.

Borders and Barnes & Noble overbuilt, she said, adding it’s impossible for them to sell the number of books required to pay rent on all the square footage they occupy in the Valley.

A Borders failure would leave three empty stores in the East Valley, at Superstition Springs Mall in Mesa, at a mostly empty shopping center east of Fiesta Mall in Mesa and at the Chandler Pavilions. By comparison, Barnes & Noble operates five East Valley stores.

It’s unclear who would win Borders’ customers – especially from

This week Mr. Rosenthal is celebrating a happy landing. On Tuesday morning, it was announced that come January he will be running his own boutique imprint at Penguin Group USA, arguably the healthiest of the big New York Book Publishers as well as home to a number of the 56-year-old’s former colleagues. Once he gets going, Mr. Rosenthal—whose roster at Simon & Schuster included Bob Woodward, David McCullough, Bob Dylan and Jim Cramer—will be on charge of a small but full-fledged operation at Penguin Book Publishers, with dedicated publicity and marketing muscle and a list totaling somewhere between 24 and 36 books per year.

Mr. Rosenthal, an executive known for his eclectic tastes and blunt manner, has published a long list of authors in his 25-year career, including Bob Dylan, James Carville, Jeffery Deaver and Bob Woodward.

Many of those writers will be fair game as Mr. Rosenthal begins to acquire books for his own imprint, setting up competition between Penguin and Simon & Schuster.

Over lunch on Tuesday at the Half King in Chelsea, Mr. Rosenthal said Penguin president Susan Petersen Kennedy reached out to him shortly after his firing, and had been “aggressive and enthusiastic” in their talks. He is stoked to go work for her, he said: “People at Penguin don’t bitch about their place of employ nearly as much as people elsewhere. Everybody says, ‘The only person you ever want to work for in publishing anymore is Susan.’”

Initially, Mr. Rosenthal considered another path after he was canned—doing something Web-related, for instance, or becoming a packager, a consultant or “a guru of some kind”—but in the end he resolved to stick with traditional book publishing. It wasn’t a self-evident decision, if only because book sales have been falling so severely in recent years that many in the industry are panicked about the long-term viability of their business.

“He has a lot of people he’s been working with for many, many years,” Susan Petersen Kennedy, the president of Penguin Group USA, said in an interview on Monday. “And perhaps at some point, some of them will join him.”

Mr. Rosenthal’s imprint, which has yet to be named, will publish two to three dozen books each year, a mix of nonfiction and fiction.

“I’m going to make lots of trouble,” Mr. Rosenthal said in an interview. “They’re going to let me go after the kind of — I wouldn’t say quirky — but the peculiar stuff that I sometimes like. What they want very much is for me to be able to indulge my passions, indulge my taste.”

For more than a decade, Penguin has focused on creating imprints that reflect the visions and interests of their book publishers, like Riverhead Books, Portfolio and Penguin Press, an imprint created by Ann Godoff after she was fired from Random House in 2003.

Book Publishers have been under pressure from the recession and a depressed retail environment, making it an unlikely time to expand.

“They’re being contrarian, which I like,” Mr. Rosenthal said. “Everybody seems to be having misgivings about where this whole thing is going. They’re obviously making a bet. They’re expanding, and it’s great to be part of that.”

Before joining Simon & Schuster, Mr. Rosenthal had been the publisher of Villard, a division of Random House Book Publishers; the managing editor of Rolling Stone; the executive editor of New York magazine; and, as Penguin noted in a news release on Monday, an employee in the morgue at the city chief medical examiner’s office.

In June, Mr. Ros