The first week of 2011 has amply demonstrated the great chasm between the two largest book retailers in the country. While Borders (BGP) inches ever closer to the brink of bankruptcy as a result of its inability to pay key vendors -- such as the publishers who supply books -- Barnes & Noble (BKS) basks in the glow of its best holiday season in over a decade.

For the nine-week holiday period ending Jan. 1, comparable store sales for Barnes & Noble's brick-and-mortar business was up 9.7% compared to last year's holiday season. For the month of December alone, comp store sales rose 12.8% compared to a year ago.

What really caused B&N to cheer so loudly, however, was the online side, which has grown significantly over the course of the last 12 months. Comparable sales for BN.com increased 78% compared to last year's holiday-selling season, while total sales for the online side grew to $228.5 million, an increase of 67% as compared to the $134 million the division earned during the same period a year ago.

B&N Gives Thanks to a Four-Letter Word

As CEO William Lynch said in the accompanying statement, B&N owes its big holiday success story to a four-letter word: NOOK, its e-reader brand. More specifically, the NOOKColor, which the company introduced last fall just before the holiday season got underway, has proven to be a huge hit. "NOOKcolor was one of the most sought-after gifts this holiday season and has quickly become the best-selling device at Barnes & Noble," said Lynch. "And, even more encouraging to us, NOOK's popularity is helping to drive new sales at both our stores and online, where 60% of NOOKcolor owners are new customers of our Barnes & Noble digital bookstore."

Aside from its e-readers, B&N also attributed the big gains to better-than-expected sales for physical books, especially hardcovers, and a 48% sales increase for its Toys & Games department.

After a turbulent year that included a proxy fight from Ron Burkle, the company put up for sale, and rumors swirling about the possibility of going private, Barnes & Noble needed some good news to begin 2011. With Thursday's holiday earnings report, investors should be reassured the company's digital-heavy strategy appears to be working, and that B&N is scarfing up significant market share that might otherwise go to online e-book competitors Amazon (AMZN), Google (GOOG) and Apple (AAPL).

The news also justifies Credit Suisse's upgrading of B&N stock from underperform to neutral, even if the primary reason for that upgrade has more to do with B&N benefiting the most from a potential Borders bankruptcy. As analyst Gary Balter said in his accompanying note, Barnes & Noble "would take about 18% of Borders sales, bringing in an additional $400 million, if the rival chain were to close all of its stores." Never has the chasm between book retailers been as vast as it is now, and with news of Borders likely to remain dire for the foreseeable future, that chasm will only grow deeper.