By Verne Kopytoff
FORTUNE -- John Evans, co-owner of Diesel, a small California bookstore chain, gives an emphatic "no" when asked if he's crazy for opening a new store this summer near San Francisco. After all, bookstores are doomed, right? Amazon (AMZN) is shoving them into extinction. E-books are taking over.
Well, not so fast. After years of steep decline, independent bookstores have turned the corner -- to a point. Sales grew 8% in 2012 and are on track for similar gains this year, according to the American Booksellers Association. The uptick is welcome news for the industry, which has been in turmoil throughout recent memory.
"For us who are in the trenches, it's funny reading about how we're disappearing when we're really growing," said Evans, who now has four bookstores with the addition of the new one in Larkspur, Calif.
No single reason explains the change in fortune for small sellers. The death of big chains like Borders and retreat of Barnes & Noble (BKS) has certainly played a role. There's simply less competition now.
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But that doesn't tell the entire story. To survive in the age of Amazon, many bookstores are emphasizing what e-commerce has a tougher time delivering: community and a personal touch. It's not exactly a new strategy. But it has gotten far more attention in recent years.
Amazon's automated recommendations -- couched on its site as "customers who bought this item also bought ..." -- aren't quite the same as getting advice from knowledgeable bookstore staff. Nor is Goodreads, the Amazon-owned book recommendation and community site, a substitute for attending an in-store reading by a prize-winning author.
Indeed, many bookstore owners are trying to create a sort of community center amid their shelves. They've filled their store calendars with events like author lectures, writing workshops, and children's camps. Adding cafes also helps to create a scene while also diversifying revenue beyond just selling the latest bestsellers.
"We want to provide a destination," said Paul Jaffe, co-owner of Copperfield's Books, an independent chain with six stores in Northern California. He plans to open a new 7,000-square-foot store later this year in San Rafael, north of San Francisco. The store will be downtown, which lost its last bookseller years ago. Jaffe said that the closing of a nearby Borders two years ago left a void in the community that he is hoping to fill.
Like many bookstore owners, Jaffe said he's branched out from selling just new books to other items like greeting cards and candles. The new store will also have a cafe.
"It's very true that our new book sales have declined and will probably continue to decline, but were not just about new books anymore," Jaffe said. These ancillary items account for about 30% of Copperfield's total sales.
Bookstores are also getting a helping hand from the buy local movement, an idea that is closely tied to the concept of community. People, particularly in more affluent neighborhoods, make it a point to shop at local businesses as a sort of civic duty. The concept sounds too warm and fuzzy to be true. But it makes a real impact, said Oren Teicher, chief executive of the American Booksellers Association.
"People get why shopping at a locally owned business is beneficial to the economy," he said. "There was really no localism movement in America a decade ago."
A number of stores have also used online fundraising services like Indiegogo and Kickstarter to supplement sales at the cash register. People contribute what they can -- much like a charitable donation -- to keep their local store alive.
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No one tracks the number of independent bookstores nationwide. The closest proxy is the American Booksellers Association's membership, which grew 16% over the past five years to 1,632. The rise reversed a lengthy decline that started in the mid-1990s.
Despite the growth, bookstores still face stiff competition from Amazon. Trying to match the online retailing giant's prices is futile. Amazon can afford to charge a dollar or two less for every book. Bookstore owners must convince shoppers that buying from them is worth the extra cost.
Taking online orders -- much like Amazon does -- is the norm now for many brick-and-mortar booksellers. A good number also sell e-books on their websites with the help of partners. Stores collect a commission on every digital book sold. For most stores, however, e-books account for only a small percentage of overall revenue.
To bookstore owners, "Amazon" remains somewhat of a dirty word. Their grievances are many including Amazon's low prices -- some call them predatory -- and the company's outsized impact on the publishing industry. One especially sore spot is Amazon's aversion to collecting sales tax. Storeowners complain that it gives the online retailer an unfair advantage in many states.
Operating a bookstore remains a tough business, even with the recent stability in the industry. Stores still close. Jaffe, from Copperfield's, said that his business is doing relatively well -- but not great. He had to downsize four stores two years ago, but he said that his business has since been on an upswing.
"Nobody is making millions in the book business," Jaffe said. "We do the best we can."
FORTUNE -- You've been meaning to use that Borders gift card Aunt Elma gave you but haven't gotten around to it. Now that the bookstore chain is liquidating, are you up a creek? Maybe not. In 2008 law firm Krislov & Associates filed a claim against the Sharper Image on behalf of gift-card holders after the chain filed for bankruptcy. The result? A settlement, to be allocated later this year, MOREAug 30, 2011 5:00 AM ET
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