Get rid of the physical books and CDs. Only sell goods with 90% margins: Lattes and greeting cards. Rent smaller spaces but build them with beautiful architecture and interior design, comfortable couches, display advertising for the latest digital content, and beautiful, high-resolution e-readers that will let users browse any book in the world, and headphones to listen to any song on the planet. Invite local authors for frequent readings that will let them interact with the audience and the audience interact with them. Staff the store with fewer, but more knowledgeable staff who can recommend books and music, and help people use the fancy electronics.
Want to finish reading a book at home? Swipe your card through the reader and it will be instantly available on your Android phone, your iPad, and your computer. The bookstore takes a cut.
This is much like Matt Mullenweg’s proposal for SafeBank. Eliminate what no longer matters to today’s customer; provide exquisite customer service.