It wasn't supposed to be this way. By now, as you'll recall, the businesses of all offline book, record, and even toy retailers were supposed to have been slaughtered by e-tail competitors, which held out the promise of hassle-free, 24-hour shopping (and which were unencumbered by such old-fashioned business notions as lease obligations, distribution centers, and inventory). "They were supposed to divert billions of dollars of sales that had been streaming into traditional cash registers," says New York money manager Rick Shea of Vardon Capital Management. The inflection point, if you can call it that, was Thanksgiving week, 1998--when many Internet stocks, buoyed by that year's pre-Christmas optimism, went on a tear.

As the air flew out of Nasdaq in recent weeks, however, a number of yesteryear's mighty mortar slayers have had the wind knocked out of them. Their ranks include such notable hypeables as CDNow and eToys, both of which have seen their share prices plunge to all-time lows. The irony, though, is that the stocks of Barnes & Noble and other traditional specialty retailers are also hovering not far from their lows--this despite sharply improved fundamentals. Shea, who hunts for price discrepancies, is seizing the opportunity to buy not only B&N but also Musicland (which owns Sam Goody and other record chains), Trans World Entertainment (Record Town, among others), Borders Group (which recently put itself up for sale), and even Toys "R" Us (whose problems were more internal than Internet).

While many e-tailers--even the virtual wounded--still trade at a multiple to their revenues, the brick-and-mortars are selling for steep "going out of business" discounts when compared with their annual sales. Shares of B&N, Borders, and Trans World, for example, all trade at around 40% of their respective sales, while Musicland goes for a paltry 13% of sales. "We're disappointed to see that type of market cap in light of our performance," says Trans World Chief Financial Officer John Sullivan.

Rather than retrench, however, the bricks are continuing with their expansion plans, and paradoxically, the Internet may actually be helping. Sure, the Web booksellers may have shaved a couple of points off B&N's market share, says Riggio, but the experience has taught his company to be "more selective" in store openings. The result, Riggio exclaims, was that all 40 stores opened last year were "home runs." Then there are the online sites launched by these cashier-line retailers. Barnes & Noble's site, the best known, serves as a 24-hour commercial. "It's like having a free TV station for the retail stores," Riggio says.

Of course, it works the other way around too. As book buyers go online to shop, they choose the brand they know. One would think that the B&N site would cannibalize shoppers who might otherwise go to a store at the mall. Not so, says Riggio, who points out that the pie is only getting bigger--an observation echoed by Musicland CEO Jack Eugster: "A good part of the [new online] volume comes out of the record clubs, whose customers are believed to have started migrating online."

Then why are the walk-ins doing so well? For the simple reason that "people like to shop," says Trans World's Sullivan. That's right, just as VCRs didn't cause people to stop going to movies, online shopping hasn't squelched the human desire to browse. What's more, as many of these retailers have grown bigger and more fun--with everything from celebrity readings to internal coffeehouses--they've become the social and cultural meccas of some communities. "This is not to say the brick-and-mortar guys got it all right," Shea says. "They failed to anticipate the value of first-mover advantage. And they failed to anticipate how they had to broaden their customer base by creating another distribution channel."

But one might argue that the bricks, having learned a lesson or two, are well positioned to benefit from an online retailing shakeout. Indeed, rising stock prices could be their ultimate revenge.

HERB GREENBERG is a daily columnist for theStreet.com.