Erol's Inc., stung by intense competition that has eroded its leading share of the Washington market, will attempt to expand its presence around the country by franchising its video stores, the Springfield-based retailer said yesterday.

The privately held company said it has turned to franchising in hopes of more than doubling its size within the next 2 1/2 years. Erol's operates 207 stores, all of them company owned, and wants to add as many as 225 franchised outlets to the 75 company stores it plans to open by 1993.

Troy Cooper, who will head Erol's franchising efforts, said the company could not fund such rapid expansion with its own cash. A new store, he said, requires an investment of between $400,000 and $600,000.

"Our {current} rate of growth won't keep us at the top," said Cooper. "If we want to continue to be a major player, we have to get more outlets open quickly."

Erol's is getting into franchising at a time when the video retail business is stalled. After eight years of frantic growth, rental activity across the nation was up only 4 percent last year, according to Fairfield Research, a Lincoln, Neb., company that tracks the business. The slowdown has primarily affected smaller neighborhood retailers, which are losing market share to the rapidly consolidating regional and national companies.

But Erol's, which once dominated video retailing in the area, has had a tough time adjusting to the entrance of Blockbuster Video -- the nation's largest video retailer -- into the market. Erol's also has experienced a management shake-up, with its president resigning in June and with 20 percent of its headquarters staff being dismissed in March in a cost-cutting move.

The cost-cutting continues. Cooper said a handful of unprofitable stores may be closed within the next year.

By refusing until now to franchise its stores, Erol's has fallen to a distant third among video chains. In recent years, it has lost ground to two aggressive franchisors, Blockbuster Entertainment Corp. and West Coast Video Inc.

Ft. Lauderdale, Fla.-based Blockbuster has 1,300 stores across the country, about half of them franchised, while Philadelphia-based West Coast has surpassed 600 units, primarily franchised stores in eastern and midwestern markets.

Video franchising follows much the same rationale as fast-food franchising. The parent company gets franchising fees, while the franchisees gain access to centralized advertising and support operations. By concentrating many outlets in a single market, franchisees can make more efficient use of advertising dollars. The franchise agreements mandate that franchisees pay Erol's a royalty of 5 percent of monthly revenue plus an advertising and marketing fee that is 3 percent of sales.

Even with a strong franchising program, Erol's seems destined to fall farther behind the two larger chains.

Both Blockbuster and West Coast say they are aiming to add as many as 150 new units a year or more for the next several years.

Erol's, however, won't be taking on its larger rivals directly in most of the markets it is targeting.

The company has targeted Philadelphia, Cleveland, Richmond, Norfolk, Chicago, Atlanta, Buffalo, Pittsburgh and Rochester,N.Y. -- markets in which it already operates or is near. Blockbuster already has "presold" regional development rights to operators in most of these areas, including Washington.

Among the markets Erol's is targeting, West Coast's franchising efforts will overlap only in Atlanta and Chicago, said John L. Barry, West Coast's top franchising executive.