Erol's, the nation's largest privately owned videocassette rental business, has begun to lay off workers in an attempt to "trim the fat" and make further growth possible, a top executive said yesterday.

Ron Castell, the firm's vice president of advertising, said about 88 workers, mainly at the company's Springfield headquarters, lost their jobs in an "across-the-board cut." The company, whose stores sell and rent videocassettes and sell TVs, video recorders and related equipment, employs about 925 people in Springfield. The layoffs represent more than 3 percent of Erol's work force of approximately 2,800.

The layoffs, which went into effect yesterday, for the most part will not affect employes at the chain's 95 stores between Norfolk and Philadelphia, said a company spokesman. The laid-off workers will receive severance pay, but the company would not specify the amount.

Other industry executives say that, while the industry has undergone a slowdown since last year, the Erol's layoffs do not necessarily signal problems for the company.

Erol's rapid growth in the area over the past few years resulted in overhiring, said Castell. "When you grow, you add fat because you're running so fast to add growth."

He estimated Erol's annual revenue at $120 million and said Erol's had not experienced an overall decline in profitablity, but he declined to release other financial data.

An examination of the company's operations led to the decision to eliminate personnel in accounting, data processing, advertising and operations, said Castell. "As we become more mature, we are discovering we can become more decentralized."

The responsibility for some aspects of data processing and accounting will be transferred to Erol's stores, requiring fewer personnel in those areas. Advertising production assistants and artists hired to keep pace with Erol's growth are no longer needed, said Castell.

Erol's founder, Erol Onaran, is a Turkish immigrant who in 25 years has built a chain of video rental stores that garnered an estimated 40 percent of the video rental market in the entire Washington area, even though it has only two stores in the District. For the past five years, Onaran has been aggressively expanding his chain; he has said that his goal is to double business every year. Erol's has opened 32 new stores since last summer.

Tom Ray of MSV Distributing, a Baltimore videocassette distributor, said Erol's cutbacks do not mean the market is saturated. "I would say that, based on their business history, that this is an aggressive move for them. They've found a better way to do it with less people, less activity and more productivity."

Summer is a traditionally soft season for video-rental operations, say local store owners. "This year we have seen a glut of video stores appear, like leaves on a tree. This is the time of year we see the tree start shaking a little," said Alan Coccio, president of The Channel 3 Connection, a seven-store video-rental chain in Baltimore.

The number of video-rental stores in Washington has doubled in the past year, according to Frank Barnako, owner of The Video Place, the area's second-largest chain.