"We don't like being called a department store anymore," said Woodward & Lothrop Inc.'s president, Edwin K. Hoffman. "It makes us sound old and stodgy, and we don't think we are."

Instead, Hoffman said he prefers to call Woodies a fashion store that "is a quick and major purveyor of merchandise, particularly to people in upper-income brackets."

Like most other department stores and mass merchandisers around the country, Woodies and The Hecht Co. are slowly but steadily shedding their traditional image as vast emporiums that sell all things to all people.

Faced with increasing competition from specialty stores that offer a wider variety in a few specific lines of merchandise, and often at lower prices, department stores are whittling down their goods -- cutting out entire departments in some cases -- in areas where they feel they no longer can compete or where profits aren't satisfactory.

At Woodies, the budget stores have been eliminated, as well as the book and fabric departments. The toy department has been dropped at seven of the chain's 16 stores, and those that remain have been reduced drastically in size and scope to sell primarily high-priced collectible toys. Major appliances such as refrigerators and dishwashers still are being sold in all but one store, but that "won't last for much longer," Hoffman said.

At Hecht's, the toy, book, fabric and major-appliance departments have been discontinued.

"Specialty stores were discounting the prices, making it unprofitable for us to carry" these items, said Hecht's chairman, J. Warren Harris.

Hecht's budget stores remain in 13 of the 23 stores. However, one company official noted, "As we remodel stores and add new ones, there will not be budget stores."

In turn, Harris noted, Hecht's will increase the space it devotes to apparel, particularly women's clothing, enlarging its sportswear department and adding sections to cater to special sizes such as petite and large-size women.

"We are buying more narrow, but deeper," one Hecht official said.

"Department stores have realized that being all things to all people is not very important to a large number of people," said Tom Rubel, a group vice president for Management Horizons, a management consulting firm that specializes in the retail industry. Department stores have learned "it is better to be important to a small number of loyal people," Rubel added.

"Department stores will evolve into specialty retailers of major proportions," predicted Walter F. Loeb, a financial analyst with Morgan Stanley & Co. "They will become specialty stores for apparel . . . trying to be on the leading edge of fashion," serving only a few segments of the market, not all. "This is being well done now by Lord & Taylor, which has a special focus on the preppy customer and doesn't care what other customers want," Loeb said.

At the moment, perhaps nowhere is the department stores' move to fight specialty stores by becoming specialty stores themselves more evident than in Montgomery Ward & Co.'s newly remodeled and expanded store in Annapolis. Scheduled to be unveiled to the public this week, the revamped store represents what many financial analysts and industry experts say is the company's last-gasp effort to climb out of its financial woes and once again become a profitable and major player in the retailing industry.

Almost since Mobil Corp. purchased Ward's nine years ago for $1 billion, the retailer -- the nation's sixth-largest -- has been in the financial doldrums. To offset more than four years of losses, Mobil had to pump more than $600 million into Ward's before it returned to profitability in 1984.

Mobil now has made it clear it wants to get rid of Ward's within the next two to three years. To make Ward's more attractive to a potential buyer, the company is moving quickly to cut out its unprofitable divisions. Just two weeks ago, it announced it was dropping its 113-year-old catalogue operations, which had lost more than $257 million since 1979. At the same time, the company has launched a massive remodeling and remerchandising campaign to make its stores more competitive with other retailers.

The Annapolis store is the first full test of what the chain has dubbed its "specialty store" concept, which it has designed to compete "with the best specialists in retailing." If successful, the concept gradually will be installed in other stores across the country.

Ward's selected the Annapolis site not only because it has been one of the chain's best performers but also because of the area's demographics.

"Market population is nearly 400,000, adults age 18-44 make up 47 percent of the population and the median income of the Annapolis Mall shopper is $40,000," the company said.

Ward's officials like to describe its new store -- which has been on the drawing boards for about four years -- as a group of seven specialty stores all under one roof but each with a unique look to "create a store-within-a-store" look. The "stores" are: apparel, appliances, automotive, home, home care, home electronics, and recreation and leisure.

Although the remodeling was not complete last week, a walk through the frenetic last-minute activities revealed a brightly lit, modernly dressed store, far different than the Ward's most consumers have been shopping in for the past decade.

Gone are several of Ward's old standbys, including plants and horticulture supplies, uniforms for work, the candy department, records and tapes, stationery, fencing, ladders and plumbing supplies.

But unlike other department stores that are eliminating major appliances, Ward's has spruced up its department to further enhance what has traditionally been one of the company's best-selling divisions. About four dozen refrigerators, 18 different dishwashers, and at least two dozen different ovens and ranges were among the many items on display.

Similarly, in the recreation and leisure department, there was display space for about four dozen bicycles and 16 different lawn mowers. Adjacent to the bikes was a toy department -- a new section for Ward's in an attempt to make the chain a family-oriented store, company officials say.

Overall, however, the new Ward's seems much like other recently remodeled mass merchants such as Sears Roebuck & Co. and J. C. Penney Co. Inc., which two years ago updated their merchandise lines and presentation. Like other retailers, Penney cut out major merchandise lines such as major appliances to add more space to clothes and home furnishings.

Even so, Ward's promotional campaign to call itself a series of seven specialty stores under one roof clearly demonstrates the rising importance of specialty stores such as The Limited, Circuit City, Toys R Us and Crown Books.

Industry officials calculate that, about 10 years ago, department stores and mass merchants accounted for about half of all retail sales. Today, industry experts say they account for about only one-third of all sales, with specialty stores and off-price stores gaining most of the market share the major retailers have lost.

"Department stores are finding it harder and harder to compete," said Terence J. McEvoy, a financial analyst with Smith Barney, Harris Upham & Co. "Because of their size, it is hard to cut prices to match off-price stores and they are too inflexible to compete with specialty stores" in offering the latest products quickly and in depth, commented McEvoy, who specializes in analyzing the specialty chains.

Nonetheless, industry officials -- even those at the most successful specialty chains -- are not ready to bury the major retailers.

"It has been very fashionable to malign department stores," said David T. Kollatt, executive vice president of The Limited Inc. "They are not as powerful as they used to be, but the fact is they are still king of the hill because they are the most dominant form of retailing in terms of market share. They still capture the largest share of the market where they exist."

Alan Pennington, president of the retail consulting firm Pennington Associates, added: "There is always going to be a role for department stores. They've survived for more than 100 years -- in spite of everyone predicting their demise. There's a niche there for them."

Yet, Pennington noted, it is doubtful there will be any new department store chains in the future, especially considering that so few shopping malls are being built today. "You won't find any more department stores like a Bamberger's, a Macy's, or a Dayton Hudson," he said.

The rise and success of specialty stores is in part attributable to the explosion of new products that has occurred since World War II, noted financial analyst Fred E. Wintzer Jr. of Alex Brown & Sons. The ever-increasing number of products available "makes it more difficult for mass merchants, with a fixed amount of space, to carry everything," Wintzer said.

Department stores try to carry many of the items, added McEvoy. But in some cases, the wide selection is frustrating to consumers, he believed.

"You can spend several hours walking through three to four departments with no service to find what you want," he said. In contrast, he added, a shopper who knows what he or she wants can go to a Limited or a Circuit City and find it with sales help in a shorter period of time.

The increasing heterogeneity of American consumers is making it easier for specialty stores to compete.

"The United States is no longer a homogenized market composed of Ozzie-and-Harriet households," said Management Horizon's Rubel. "It's a splintered market. That puts pressure on a generalist because the great American middle-class is not as homogenous as it once was. It also makes specialty stores do well because they can serve the special need of a group of people."

Also putting pressure on the traditional department stores is the erosion of advantages they once had over specialty stores. Consumers liked to shop at department stores because they represented one-stop shopping -- no need to climb in and out of the car to go from one store to the next.

But enclosed malls -- with scores of different specialty stores -- now meet that same goal.

At the same time, the availability of bank credit cards such as Visa and MasterCard has obliterated one of the other chief advantages of department stores: credit.

The buying power that enabled them to get better price deals on merchandise also has been weakened as specialty chains grow larger and larger.

"A department store chain with 15 stores doesn't necessarily buy merchandise at the best cost if it is competing with a specialty chain of 500 stores," Rubel noted.

"The trend is definitely towards specialty stores," said Morgan Stanley's Loeb. "The real growth in retailing today is in the specialty area. That presents a challenge for retailers to maintain market share."

Many industry experts question whether Ward will be able to succeed with its new "specialty-store" formula.

"The chain has suffered from so many years of problems that it will be very difficult -- even for the most talented guys which Ward's now has -- to turn it around," said The Limited's Kollatt.