After the story appeared in a gay-oriented newspaper earlier this year, Woodward & Lothrop started receiving piles of returned credit cards and merchandise from gay customers.

The 17-store local department store chain was then in the midst of a fracas with D.C.'s gay community over the refusal of Woodies's management to give employee discount privileges to the live-in partner of a gay salesman at its Chevy Chase store. The policy then was to only give the special 20 percent discount to employees and their legal spouses and dependents.

Faced with the threat of an economic boycott and the possibility of protests by gay men and lesbians at stores over the lucrative George Washington's birthday weekend, executives at Woodies were taken aback.

"We found there was an articulate and financially important gay and lesbian community in Washington, many of whom had shopped at Woodies for a long time," said Joseph Culver, Woodward & Lothrop's vice president for personnel and services. "The strong emotions of the customers caught us a little by surprise."

But many in the retail industry are recognizing the importance of cultivating gay customers, who are beginning to exercise their clout economically. Though boycotts and protests by minority groups are not a new tactic, their use by gay people may be entering a new phase of effectiveness, at the same time that mainstream businesses are looking to expand their share of the gay market in an intensely competitive retail environment.

"Being gay no longer has a negative stamp in major cities and that community seems to be entering a period parallel to one that many ... ethnic and national groups used to be in," said Michael Gade, retail analyst for Coopers & Lybrand. "First, there was the successful growth of gay-owned stores. Now, mainstream businesses are starting to lose their inhibitions about targeting gays, because whenever you have a definite market segment with needs and expectations, retailers can take advantage of the tremendous opportunities."

But that strategy still carries risk. "You have to be careful with niche segmentation, so you don't offend some old customers who ... might think, 'That's where the gays shop,' because when you target one group, another group could think they don't belong," said Gade. "But if you do it right, you are tapping into a great market with a lot of money it wants to spend in friendly places."

Gay-owned businesses have always thought so. "It's obviously a viable and valuable market to have, considering the estimates that 10 percent of the population is gay -- so more gays are supporting businesses that support us and therefore all the bigger businesses are going to come around sooner or later," said Deacon Maccubbin, co-owner of Dupont Circle's 16-year-old Lambda Rising, the largest gay bookstore in the United States with $1.7 million in sales a year.

"Many in the mainstream look at gay media, for example, with an unconscious homophobia and think they are all dirty picture books, instead of the vibrant, news- and feature-oriented venues that reach a profitable market," Maccubbin said. "It's sort of the situation magazines like Ebony were in a long time ago, when everybody was unfamiliar with it."

Don Michaels, publisher of the Washington Blade newspaper, the sole gay-oriented media outlet in the area, has noticed a shift since the free, 30,000-circulation weekly was founded 20 years ago.

"We have picked up more and more straight advertisers, though they are usually small businesses, as the segmented marketing approach has caught on," said Michaels. "But many more businesses, especially those located in gay-centered areas of Washington, have overcome the reluctance to acknowledge ... the gay market."

The readers of the Blade, based on recent surveys by the newspaper, are quite affluent. According to a survey this past winter, 62 percent of the readers have incomes of $30,000 or above and 30 percent have incomes of $50,000 and above; the majority of readers are between the ages of 26 and 54; 77 percent own a car; 53 percent own a home; 37 percent own a computer; 79 percent own a videocassette recorder; and 48 percent own a compact disc player. A whopping 80 percent said they were loyal to Blade advertisers, with 70 percent claiming they would alter their shopping habits if a retailer that advertised in the newspaper pulled its ads.

"The ads draw in a lot of customers who tell me that they would not come in if I did not support the paper," said Michael Barnaba, owner of Crown Liquor in Dupont Circle. "There are a lot of gays in the area and I want to increase my customers -- and as far as I am concerned everybody's money is green."

Capitol Video, with three locations citywide, also is actively seeking gay customers. "We stock videos for everyone, including those gay customers want," said Richard Martin, manager of the stores. "Since it is in our interest to satisfy customers in the areas we operate in, we staunchly support the gay and lesbian community."

Many retailers cite the spending power of gay people. "Many customers I know to be gay spend very upscale," said Bary Maddox, owner of Graffiti Audio/Video, which has two locations in the District. "I don't see a down side, and I am glad when gays choose to come to us."

That attitude appears to be even more prevalent these days, amid the relatively lackluster selling environment. Retail sales have declined for the past three months, the Commerce Department reported last week. "I'm glad to reach any customer I can to patronize my business," said Susan Lihn, owner of the two-year-old Wake Up Little Susie gift shop in Washington's Adams-Morgan neighborhood. "As retailing gets tougher, niche advertising reaches a large segment of people."

And some businesses, such as Cineplex Odeon, have gotten quite sophisticated about dealing with their gay constituency. "We considered the gay audience an integral part of marketing of many movies, and we'll do creative marketing at clubs, with ads, other things to get them to come in," said Freeman Fisher, Cineplex Odeon's director of advertising and promotions in Washington. "But we also avoid being too token, by only pushing gay-oriented movies. Gays seem to want to watch everything and, I think, are an important part of the reason that Washington is able to be such a great market for varied and experimental movies."

Still, there is the sense that important retailers, such as The Gap and The Limited, are not ready to make the jump. "I think we could push them harder, but we still have a limited staff," said the Blade's Michaels, who points out that Miller Beer and the Kennedy Center advertise in his paper. "I think at some point common sense will occur to a lot more businesses that they are ignoring or losing a very good market."

Woodies almost learned that the hard way.

When Duane Rinde was first employed at Woodies as a salesman, his managers asked if he wanted a discount card for a spouse. But when he said he would like one for Rob Teir -- with whom Rinde owned a house in the District and shared bank accounts and living expenses -- they turned him down.

"I was openly gay and ready to prove everything they needed," Rinde said. "I have little tolerance for those that don't accept me and I felt that if they are going to give the card, they should realize that the nuclear family is not what it used to be."

Rinde took his case to the union, who told him it was not "arbitrational" and suggested he try the D.C. and Montgomery County governments, both of which have civil rights protections in cases of discrimination on the basis of sexual preference. It appeared to Rinde that his protest brought trouble at work, including a suspension for failing to punch a time clock and blackballing by some co-workers at the store.

Rinde's appeal to government officials also brought attention to his situation and help from Washington's Gay & Lesbian Activists Alliance (GLAA) and the National Gay & Lesbian Task Force (NGLTF), which put pressure on Woodies.

"It started to be a serious economic and public relations problem for them, as the response from gay and lesbian shoppers grew," said Ivy Young of the NGLTF. "I think Woodies realized quickly that this was more than an employee thing and that their actions were offending a group that had an enormous amount of disposable income that they were not scared to use as a bargaining chip."

Woodies brought in high-powered public relations executive David Abramson to deal with the gay-rights groups and their demands, which included the discount, back pay and a cleared employee record for Rinde, a change in its employment policy to include nondiscrimination based on sexual orientation, sensitivity training on homophobia for Woodies employees and managers and a promise that Woodies would engage in public advocacy for legislation that would extend spousal benefits to gay partners.

After a few meetings, Woodies's executives caught gay-rights groups by surprise by agreeing to everything. "We were telling them that they had to change with the times, and they changed before we had to push them, by opening up their minds to a simple issue of fairness. They deserve a lot of credit for that," said Roger Doughty, president of the GLAA.

"Once we got past the emotional aspects of the issue, we began to realize that it was a topic that we could do something about," said Woodies's senior vice president Culver. "But most importantly, the incident gave us all an awareness in the organization that some of our thinking was archaic and needed to change."

But even after its actions, Woodies, which has advertised in the Blade on occasion, is reluctant to be too closely linked to the gay community.

"We got some negative letters, though many were unsigned, but they make us very conscious not to seem overly accommodating to any one constituency," Culver said. "For example, we did not take a full-page ad in the newspapers trumpeting our decision and we did not want to participate at a press conference for it. But when the issue erupted, we also did not stick our heads in the sand either."

Without prompting, the nine-store Garfinckel's chain followed Woodies's lead. "We looked at what went on with Woodies and thought it was the right thing to do, considering the realities of today," said George P. Kelly, Garfinckel's president and chairman. "We did it for business reasons too, since I have seen surveys that show that the gay community is one that shops and spends money way beyond the necessities."

The precedent-setting action by Woodies and Garfinckel's is apparently the first of its kind for large retail operations nationwide, one the GLAA's Doughty hopes to take advantage of.

"The options for a united gay community of what we might do and what we might not do had a potential far beyond the discount card," Doughty said. "The issue made a lot of gays here say to themselves, 'If Woodies does not care about concerns of gay employees, should I be spending my money there?' And with all the affluence in the community, it made for a big economic club."

That is a cudgel Doughty and his group thinks could be put to good use, especially with retailers. Already, GLAA has contacted many major department stores that operate in the area -- including Hecht's, Macy's, Nordstrom, Sears, Neiman-Marcus, J.C. Penney and Saks Fifth Avenue -- to ask them to change their employee discount and other policies.

"We think these stores should be accountable to gay customers the same way they are to others," said Doughty. "And with retailers we have some leverage as a community -- we can vote with our wallets and shop in places that appreciate us."