Seven years ago Craig and Nancy Lussi turned an old bowling alley in Bethesda into an indoor English village. They brought in fancy shops, a fountain from a Paris park and a real, turn-of-the-century carousel as a centerpiece for the mall. Bethesda Square opened--on one of the city's busiest corners two blocks from a planned Metro stop--to praise and what seemed certain success.

But today the mall is failing.

The Lussis are gone, and so are many of the shoppers. Inside the mall at Old Georgetown Road and Woodmont Avenue, shops stand empty along the winding brick corridors.

On a recent weekday morning at 10, no shoppers were visible inside the square. The gaily painted carousel, turned on infrequently these days, was quiet. Merchants complain this is an all-too-typical scene and that although more shoppers turn out on weekends, they are not numerous enough to make up for the lack of business on other days.

"I feel badly that things have not worked out there. The location is still super," said Lussi, who said he quit managing the mall three years ago after a disagreement with his partner, Kingdon Gould III.

Neil J. Simon, vice president of Carey Winston, the commercial management firm Gould hired to take over the project, believes part of Bethesda Square's difficulties stem from the county's down-zoning of the area in 1976. Zoning that would have allowed commercial buildings as high as 14 stories was changed to limit structures to two stories.

"When Craig conceived it, he thought the square would be surrounded by a million square feet of office space," providing plenty of customers for the mall, Simon said. The hundreds of office workers who would have filled such buildings could have provided plenty of customers for Bethesda Square.

The mall's difficulties will be temporary, according to Simon, because "Metro will soon be coming, the economy is coming back, the parking is in place, there's a stable ownership." The Bethesda Metrorail station is scheduled to open in late 1983.

Other factors contributed to the decline of Bethesda Square, declared by the Bethesda Chamber of Commerce to be the best design of a new building in 1976.

Lussi believes one problem was the Montgomery County sewer moratorium, not lifted until two years ago, which severely limited the number of restaurants that could be opened in the square. In addition, several of the original shops were run by newcomers to business, whose inexperience proved too great a handicap, said Lussi. As those businesses failed and the economy worsened, attracting new tenants became more difficult.

Perhaps of even more impact, though, was a loss of parking space for potential shoppers. The county government closed a large parking lot next to the square to make way for construction of a multistory municipal garage.

County police ticketed and towed daily in the streets around the square, merchants said. Pat Ahearne, owner of the Quill and Brush Bookstore and Gallery, recalled that when she phoned customers about a book, they only remembered it cost them $50 to redeem their car the last time they saw her.

The garage is completed, with ample parking available now, and rent for space in the mall is a reasonable $10 to $12 a square foot.

But shoppers still stay away in droves and neither the tenants, who love the charm of Bethesda Square, nor Lussi, its creator, can explain exactly why.

Among the shops once housed in the now-empty rooms were an off-beat establishment that made furniture out of shipping crates, a plant store, a shop specializing in unusual clocks, a juice bar, indoor tennis courts and a store that specialized in military games, books and posters.

Eight of the 28 store spaces are empty, most of them on the inside of the mall. Stores still open include a pizza restaurant, a county liquor store, a barber shop and an ice cream parlor, which, like most of those still in business, open onto the street. They do not have doors that open from the shops to the inside of the square, further cutting down on foot traffic past the inside shops.

Inside shops still open include an armed forces recruiting office, the Maryland School of Ballet, the Library Store (a retail outlet for library supplies), and other shops not likely to attract browsers.

The quiet frequently is broken only by the sounds of a video game room upstairs. There has been some minor vandalism and the merchants suspect teen-agers who frequent the games area.

The mall, which the Lussis envisioned would thrive on elegant shops and ambiance, also has become a comfortable haunt for derelicts.

"You know, the people who sleep in the bus station," said Ahearne of the Quill and Brush. She said one bag woman spends almost 12 hours each day on a bench several doors down from Ahearne's shop. "The mall has evolved to this," Ahearne said. "This is very new for Bethesda."

Simon said Carey Winston, with the approval of owner Gould, is about to begin aggressively promoting the center in an effort to revitalize it. One proposal is to turn it into another Torpedo Factory, the Alexandria warehouse that has been converted into studios where artists work and sell their creations.

Simon said the company was willing to make "some creative deals" to get the center going again.

"Now is the time," Simon said. When Metro is finished, leasing rates will skyrocket in the area, probably to between $25 and $40 a square foot, Simon predicts.

When the Lussis first built Bethesda Square, they were careful to select tenants with appealing, unusual goods to sell.

Pat Ahearne remembers Lussi was not much interested in her plan for a bookstore, until he discovered she and her husband would sell only 20th century first editions.

"He said we could not match what the big malls had so we were going to be very special shops. The mall where you came because it was your own personal thing," Ahearne said. "In another economic time it might have worked."

Down the hall, Alan Handler, owner of The Jewelry Handlers, which was robbed, has his own theory of what went wrong. "When people started moving out there was a snowball effect. The owners lost interest; everybody lost interest."

Handler, like the other tenants who remain, can survive because his business does not depend on walk-ins. Despite Carey Winston's optimism about the mall, Handler is unhappy with its management.

"The bathrooms are a mess. . . . There's little cooperation overall. There seems to be little interest in assistance."

Kent McCracken, who runs MTS Color Services, a photo and copying shop, disagrees. "Carey Winston has been very responsive to problems. Basically, very few people know there's a mall here. I didn't know myself until I came here looking for an office one day two years ago."

Although Swensen's Ice Cream Factory and the K-B Baronet Theater have a following, he said, there are no anchor stores, such as a drug, grocery or department store, to draw people inside the mall.

Upstairs Ahearne, whose bookstore is one of the square's most successful shops, says her lease is up in September. She and her husband Allen have not decided whether to stay. "The owner has been nothing but kind to us," she said. "But the fact that the rest of the mall is empty reflects on us being here. It's a shame. It's a beautiful building in a nice location and one wonders why."