The decision by Lucky Stores Inc. to close its Memco stores division may be more symptomatic of a larger problem among Washington-area retailers than the company's action suggests.

Slower population growth, a market area that some retailers describe as "overstored," and the recession have made competition much tougher. Indeed, "stiffer competition" forced Lucky Stores to discontinue its Memco operations, one local retail executive speculated earlier this week.

A Lucky Stores official said the decision to close the 13 Memco stores here was "based on the fact that we have been marginally profitable in the 12 years we have operated" in the Washington-Baltimore market.

The same official, citing "logistical reasons," said the parent company just didn't have the store base to operate the Memco chain so far away from the company's California headquarters.

That may be true, but that rationale doesn't seem to square with the company's decision to open two more Washington-area Memco stores only two months before concluding that it had a logistical problem. What's more, in the 12 years after it opened the first Memco store here, Lucky Stores proceeded with what appeared to have been a very carefully designed expansion plan to increase its market share.

A Lucky Stores official yesterday denied that competition influenced the decision to close the Memco chain. "We do know how to compete," he insisted.

"As long as we've operated in Washington, we feel pretty positive about that market," said James Koerlin. "We received an offer for the Memco stores about a month ago, and it was a good business decision."

In the meantime, other major discount retailers, including K mart, Woolco, Zayre's and Marshalls, have attempted to snare bigger shares of the market through aggressive expansions.

Given current market conditions and the changed nature of retail competition here over the past decade, the reference to marginal profitability appears to be closer to the mark in explaining the Memco closings.

Despite the area's reputation as one of the country's hottest retail markets, several merchants here acknowledge that an influx of retailers--high-end stores, off-price merchandisers and discount chains--in recent years has made competition tougher. The downturn in the economy has further affected profit margins.

At the opposite end of the scale, major department store chains such as Washington-based Woodward & Lothrop, Hecht's and giant Sears, Roebuck & Co., although concerned about profit margins themselves, continue to put pressure on the so-called discounters by appealing to a more-sales-conscious consumer.

That was apparent immediately before and during the recent Christmas shopping season as major department and specialty store chains mounted heavy advertising and promotional campaigns. "We can't let the discounters steal market share," a retail executive declared earlier this week.

The problem for most department and specialty stores, aside from the economy, is that "we're still overstored," according to Leonard Kolodny, manager of the Greater Washington Board of Trade's retail bureau. "It's obvious the pie is being cut into smaller pieces," Kolodny added.

Woodies' chairman, Edwin K. Hoffman, says his company experienced "the best December we ever had" despite what began as a very slow Christmas shopping season. Nevertheless, Hoffman agreed that the area is "terribly overstored." The combination of the recession and stiffer competition for market share means retailers will "have to operate more tightly," Hoffman added.

Meanwhile, it appears that neither the economy nor the scramble for market share has tempered the enthusiasm some national retailers have for the Washington market.

Although he declined to identify them, Kolodny reported that at least three major national retailers are "waiting to get in this market if they can find the right locations."

"The fact that Woolco and Memco have gone out of business doesn't mean that other retailers are reluctant to locate here," Kolodny said.

Woolco, of course, is going out of business in all of its U.S. markets. It's not clear what will happen to the Woolco stores here, but Bradlees, a discount chain based in Massachusetts, plans to remodel the Memco units and reopen them next summer.

Bradlees obviously believes it can buy enough market share in this market to make it more profitable than Memco. Caveat emptor.