As we have been speculating at Stealing Share, Barnes & Noble is in dire need of extensive rebranding if it wishes to stay afloat.

Recently, rumors have surfaced that the Nook, Barnes & Noble’s e-reader, may spin off as an entirely separate business entity. Maybe this is Barnes & Noble’s realization that if it does not rebrand now, it is destined to become the next Borders.

In other words, go belly up.

Let it be known, I still love the good, ole’ fashioned bookstore. But the fact is, bookstores are slipping away as fast as CD stores once did. Media retailers must learn from this and act accordingly. In the music business, MP3s, MySpace and the iPod revolutionized the way we listen to music. Each completely altered the marketplace from a tangible medium to the near entirely digital marketplace today. Presently, wasting time on any physical media business (such as book, video and CD stores) is as wise a move as investing in Netflix. Ask Blockbuster or Hollywood Video how badly people want to rent physical DVDs. Or Turtle Music and Borders what a wide-ranging selection of CD’s can do for you.

The fact is, we want what we want instantly. And the digital world provides us with this capability.

Books are clearly heading in the same direction as CDs. In fact, e-reader and other digital content sales for the Nook were up 43% this holiday season, while physical sales for Barnes and Noble increased only 2.5%. That’s a pretty significant difference.

This brings us back to our initial topic. It is also why I believe whole-heartedly that having the Nook as a separate business is a massively wise move for Barnes & Noble because it separates its brand from that of the brick and mortar one of B&N.

Barnes & Noble should not waste any time with this rebranding effort. It has a sleek and interesting product in the Nook. What’s more, it has grabbed hold of 30% of the e-book market already. This is reason for it to celebrate, but not to remain complacent. Embracing this change is just what Barnes & Noble needs and it is smart to realize that this change must happen.