Warner Brothers is closing its Fifth Avenue flagship, but it may not stop there - the movie studio is also shopping the leases for its 42nd Street and World Trade Center stores, a source tells The Post.

Meanwhile, potential tenants have been checking out the Fifth Avenue location, at the corner of East 57th Street. They include several high-end jewelers and a fashion house.

Retail broker Rob Nager of Murray Hill/TMP, said he had advised a major retailer of the availability, but it passed. "To me it is one of the best spots in the city," said Nager. "I would love to see a real retailer or home furnishings store there."

The upper floors are likely to be re-rented as office space.

The owners of the building, Allied Partners, may have already cut a deal to let Warner exit its 10-year lease early, say real estate sources. Warner Brothers officials are expected to announce their plans for downsizing next week. Both parties declined to comment yesterday.

Warner Brothers had previously signaled its dissatisfaction with the performance of its theme store business. The company said last November that it was considering closing or shrinking some of its 140 Warner Brothers Studio Stores.

But it is not the only company retreating from the business.

"The theme store business is over," said real estate broker Faith Hope Consolo.

Coca-Cola shuttered its Fifth Avenue Store this year. And real estate sources say Disney may be closing its 34th Street store, although a Disney rep did not return a phone call.

Disney had already announced a redesign of its 700 stores last year, hoping to reverse a drop in profits at its consumer products unit. Disney had also announced plans to close its three California ESPN Zone stores.

And Viacom closed its 15 Nickelodeon stores and one Viacom Entertainment store in 1998, saying they were too capital-intensive.

Part of the theme store problem has been a too-rapid expansion.

"These stores are very big, and some are very ambitious in their plans" said real estate broker Robert Cohen, of Robert K. Futterman & Associates. "When you have multiple locations, you don't need all that space."

Warner Brothers' Fifth Avenue store, for example, did fine when it opened in 1993, when the company leased the first five floors and basement for its flagship store.

It was such a success that Warner added floors six to 11 in January 1996 - for a total of 73,000 square-feet. But that is when sales started to droop.

Theme stores have also been hurt by discount chains such as Kmart, Wal-Mart and Target, which carry more and more of their own studio-licensed merchandise.

Even if Warner Brothers shuts its Fifth Avenue, Times Square and Downtown stores, the company will still have a New York City retailing presence.

The company plans to open a Columbus Circle store. It will be part of the planned retail development that will be built along with the new Time Warner headquarters at the site of the former Coliseum.