Woodward & Lothrop employes overwhelmingly approved yesterday a 39-month contract between Retail Store Employes Union Local 400 and the store, averting a possible strike that company workers had endorsed just two weeks ago.

The agreement, which more than 1,200 store workers approved during a meeting at the Shoreham Americana Hotel, goes into effect immediately and raises employe wages, extends health benefits and increases employe vacation time.

Although negotiations between the union and company management had broken off two weeks ago over the issue of whether all of the nearly 6,000 company employes would be forced to join the union, the union's stance was modified in the contract approved yesterday.

The new contract calls only for new employes to join the union, with current employes given the option to join. Thomas McNutt, the local's president, called the compromise a "modification."

Edwin K. Hoffman, Woodies chairman, said the management "did not give in on anything," calling the contract a decent one and saying it is "right for our people."

The pact, which covers workers at all 14 Woodies stores and two warehouses, provides retroactive benefits for the employes. Full-time workers will receive $8 a week retroactive for a maximum of 20 weeks. According to the union, those benefits will cost the company $750,000.

The union said wage increases will beat a minimum of 8 percent a year for the next three years. Top-scale employes will receive an additional $2.60 an hour spread over three years. Commission sales rates also were increased.

Spokesmen for both the company and the union said the new contract should fall within the wage guidelines set by the Council on Wage and Price Stability.

The contract also gives Woodies workers increased medical care coverage, while lowering the premiums. Vision and dental care benefits will be added during the next two years.

McNutt, who called the contract precedent-setting for the 10-month period in which it was settled, said the future of his 23,000-member local is bright.

The organization will assess immediately the prospects for stepped up union activity at other area stores. "They're all targets as far as I'm concerned," he s aid.

"For Hecht's and some of the others not to pay their people more would open the doors for us," he said. The effort to secure formal union representation for Woodies employes was the largest such organizing effort ever undertaken in the District.

Until June 30, when a contract expired, Woodies workers had been represented by a company union. But by a 4-1 vote, the employes agreed to join the AFL-CIO-member group.