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May 7 (Bloomberg) -- Borders Group Inc., the unprofitable bookseller, is entering the digital-book market with an e-reader more than 40 percent less expensive than devices from Inc. and Barnes & Noble Inc.

The retailer began taking orders today for Kobo Inc.’s $149.99 digital-book reader, the company said in a statement.’s Kindle and Barnes & Noble’s Nook sell for $259. The device will be delivered in June. It will be sold in stores in August. Borders has a 20 percent ownership stake in Kobo, Mary Davis, a spokeswoman, said by telephone.

“They are certainly trying to break in with a lower-cost reader,” Michael Souers, a New York-based analyst for Standard & Poor’s, said in a telephone interview. “It’s their only hope, because they are facing competition that is already entrenched.”

Borders is entering a growing market led by the Kindle and Sony Corp.’s Reader. U.S. Sales of digital reading devices will grow to 5 million this year from 2.2 million in 2009, the Consumer Electronics Association, a trade group, estimates. Sales of digital books in the U.S. more than doubled to $313 million last year, according to the Association of American Publishers.

The retailer, based in Ann Arbor, Michigan, has been closing stores and cutting costs in an effort to become profitable after four consecutive yearly losses. Sales fell 13 percent in the fourth quarter ended Jan. 30 to $946.5 million.

Price Cuts

The less-expensive e-reader may force and Barnes & Noble to cut prices, narrowing already small margins on their devices, Souers said.

“It’s a necessary move by Borders, but it could also end up backfiring for the whole industry,” he said. Souers has a “hold” rating on Borders’ shares.

The Kobo was released in Canada earlier this month and will be available at other U.S. retailers in the future, Meghan Rathman, a Kobo spokeswoman, said. The device comes with an application allowing consumers to buy books from Borders’ digital bookstore, which will open next month and be run by Kobo.

Borders rose 13 cents, or 6.3 percent, to $2.20 at 4:01 p.m. in New York Stock Exchange composite trading. The shares had risen 86 percent this year. Kobo is a spinoff of Toronto-based Indigo Books & Music Inc.

To contact the reporters on this story: Mark Clothier in Southfield, Michigan, at; Matt Townsend in New York at

To contact the editor responsible for this story: Jennifer Sondag at

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