<PAGE>
 
                                                                 EXHIBIT 10.17.2
 
                        EMPLOYMENT SEVERANCE AGREEMENT



    This Severance Agreement (the "Agreement") is made and entered into
effective as of January 13, 1999 (the "Effective Date"), by and between Kathi
Lentzsch (the "Executive") and Cost Plus, Inc. (the "Company").


                                R E C I T A L S
                                ---------------


     A.   The Board believes the Company should provide the Executive with
certain severance benefits should the Executive's employment with the Company
terminate under certain circumstances, such benefits to provide the Executive
with enhanced financial security and sufficient incentive and encouragement to
remain with the Company.

     B.   Certain capitalized terms used in the Agreement are defined in Section
5 below.


                                   AGREEMENT

     In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Executive by the Company, the
parties agree as follows:

     1.   Duties and Scope of Employment.  The Company shall employ the 
          ------------------------------
Executive in the position of Executive Vice President, Merchandising/Marketing
with such duties, responsibilities and compensation as in effect as of the
Effective Date. The Board and the Chief Executive Officer of the Company (the
"CEO") shall have the right to revise such responsibilities and compensation
from time to time as the Board or the CEO may deem necessary or appropriate. If
any such revision constitutes "Involuntary Termination" as defined in Section
5(c) of this Agreement, the Executive shall be entitled to benefits upon such
Involuntary Termination as provided under this Agreement.

     2.   At-Will Employment.  The Company and the Executive acknowledge that 
          ------------------ 
the Executive's employment is and shall continue to be at-will, as defined under
applicable law.  If the Executive's employment terminates for any reason, the
Executive shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
practices or in accordance with other agreements between the Company and the
Executive.  This Agreement shall remain in effect until the earlier of (i) the
date that all obligations of the parties hereunder have been satisfied or (ii)
the date upon which this Agreement terminates by consent of the parties hereto.
<PAGE>
 
     3.   Severance Benefits.
          ------------------ 

          (a)  Benefits upon Termination.  Except as provided in Section 3(b), 
               -------------------------
if the Executive's employment terminates as a result of Involuntary Termination
prior to June 15, 2000 and the Executive signs a Release of Claims, then the
Company shall pay Executive's Base Compensation to the Executive for twelve (12)
months from the Termination Date with each monthly installment payable on the
last day of such month.  Executive shall not be entitled to receive any payments
if Executive voluntarily terminates employment other than as a result of an
Involuntary Termination.

          (b)  Benefits upon Termination After a Change of Control.  If after a
               ---------------------------------------------------
Change of Control the Executive's employment terminates as a result of
Involuntary Termination prior to June 15, 2000 and the Executive signs a Release
of Claims, then the Company shall pay Executive's Base Compensation to the
Executive for eighteen (18) months from the Termination Date with each monthly
installment payable on the last day of such month.  Executive shall not be
entitled to receive any payments if Executive voluntarily terminates employment
other than as a result of an Involuntary Termination.

          (c)  Stock Options; Bonus.  Executive shall not be entitled to receive
               --------------------                                             
any unvested stock options or partial bonus payments for an incomplete bonus
plan year.

          (d)  Miscellaneous.  In addition, (i) the Company shall pay the
               -------------                                             
Executive any unpaid base salary due for periods prior to the Termination Date;
(ii) the Company shall pay the Executive all of the Executive's accrued and
unused vacation through the Termination Date; and (iii) following submission of
proper expense reports by the Executive, the Company shall reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
in connection with the business of the Company prior to termination.  These
payments shall be made promptly upon termination and within the period of time
mandated by applicable law.

     4.   Non-Solicitation.  In consideration for the mutual agreements as set
          ----------------
forth herein, Executive agrees that Executive shall not, at any time, within
twelve (12) months following termination of Executive's employment with the
Company for any reason, directly or indirectly solicit the employment or other
services of any individual who at that time shall be or within the prior twelve
(12) months shall have been an employee of the Company.

     5.   Definition of Terms.  The following terms referred to in this 
          -------------------
Agreement shall have the following meanings:

          (a)  Base Compensation.  "Base Compensation" shall mean Executive's
               -----------------                                             
monthly base salary for services performed based on the average base salary for
the six (6) months prior to the Termination Date.

          (b)  Cause.  "Cause," unless otherwise defined in the Agreement
               -----
evidencing a particular Option, means an Eligible Individual's (i) intentional
failure to perform reasonably assigned

                                      -2-
<PAGE>
 
duties, (ii) dishonesty or willful misconduct in the performance of duties,
(iii) engaging in a transaction in connection with the performance of duties to
the Company or any of its Subsidiaries thereof which transaction is adverse to
the interests of the Company or any of its Subsidiaries and which is engaged in
for personal profit or (iv) willful violation of any law, rule or regulation in
connection with the performance of duties (other than traffic violations or
similar offenses).

          (c)  "Change of Control" means the occurrence of any of the following
events:

                 (i)  The acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) of the "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities;

                (ii)  A change in the composition of the Board of Directors of
the Company occurring within a two-year period, as a result of which fewer than
a majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of Directors
of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
include an individual not otherwise an Incumbent Director whose election or
nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company);

               (iii)  A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the approval by the stockholders of the Company of a plan of
complete liquidation of the Company or of an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets;

                (iv)  The sale of all or substantially all of the assets of the
Company determined on a consolidated basis; or

                 (v)  The complete liquidation or dissolution of the Company.

          (d)  Involuntary Termination.  "Involuntary Termination" shall mean:
               -----------------------                                        

                 (i)  termination of Executive's employment by the Company for
any reason other than Cause;

                                      -3-
<PAGE>
 
                (ii)  a material reduction in Executive's salary, other than
any such reduction which is part of, and  generally consistent with, a general
reduction of officer salaries;

               (iii)  a material reduction by the Company in the kind or
level of employee benefits (other than salary and bonus) to which Executive is
entitled immediately prior to such reduction with the result that Executive's
overall benefits package (other than salary and bonus) is substantially reduced
(other than any such reduction applicable to officers of the Company generally);

                (iv)  any material breach by the Company of any material
provision of this Agreement which continues uncured for 30 days following notice
thereof;

provided that none of the foregoing shall constitute Involuntary Termination to
the extent Executive has agreed thereto.

          (e)  Release of Claims.  "Release of Claims" shall mean a waiver by
               -----------------
Executive, in a form satisfactory to the Company, of all employment related
obligations of and claims and causes of action against the Company.

          (f)  Termination Date.  "Termination Date" shall mean the date on 
               ----------------
which an event which would constitute Involuntary Termination occurs, or the
later of (i) the date on which a notice of termination is given, or (ii) the
date (which shall not be more than thirty (30) days after the giving of such
notice) specified in such notice.

     6.   Confidentiality.  Executive acknowledges that during the course of
          ---------------
Executive's employment, Executive will have produced and/or have access to
confidential information, records, notebooks, data, formula, specifications,
trade secrets, customer lists and secret inventions, and processes of the
Company and its affiliated companies.  Therefore, during or subsequent to
Executive's employment by the Company, Executive agrees to hold in confidence
and not directly or indirectly to disclose or use or copy or make lists of any
such information, except to the extent authorized by the Company in writing.
All records, files, drawings, documents, equipment, and the like, or copies
thereof, relating to the Company's business, or the business of an affiliated
company, which Executive shall prepare, or use, or come into contact with, shall
be and remain the sole property of the Company, or of an affiliated company, and
shall not be removed from the Company's or the affiliated company's premises
without its written consent, and shall be promptly returned to the Company upon
termination of employment with the Company.

      7.  Successors.
          ---------- 

          (a)  Company's Successors.  Any successor to the Company (whether
               --------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence

                                      -4-
<PAGE>
 
of a succession.  For all purposes under this Agreement, the term "Company"
shall include any successor to the Company's business and/or assets which
executes and delivers the assumption agreement pursuant to this subsection (a)
or which becomes bound by the terms of this Agreement by operation of law.

          (b)  Executive's Successors.  The terms of this Agreement and all
               ----------------------
rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

     8.   Notice.
          ------ 

          (a)  General.  Notices and all other communications contemplated by
               -------
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid.  In the case of the Executive,
mailed notices shall be addressed to Executive at the home address which
Executive most recently communicated to the Company in writing.  In the case of
the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its CEO.

          (b)  Notice of Termination.  Any termination by the Company for Cause
               ---------------------
or by the Executive as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 8(a) of this Agreement.  Such notice
shall indicate the specific termination provision in this Agreement relied upon,
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and shall
specify the termination date (which shall be not more than 30 days after the
giving of such notice).  The failure by the Executive to include in the notice
any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing Executive's
rights hereunder.

     9.   Miscellaneous Provisions.
          ------------------------ 

          (a)  No Duty to Mitigate.  The Executive shall not be required to
               -------------------
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Executive may receive from any
other source.

          (b)  Waiver.  No provision of this Agreement shall be modified, waived
               ------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company
(other than the Executive).  No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.

                                      -5-
<PAGE>
 
          (c)  Whole Agreement.  No agreements, representations or 
               ---------------
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.

          (d)  Severance Provisions in Other Agreements.  The Executive
               ----------------------------------------
acknowledges and agrees that the severance provisions set forth in this
Agreement shall supersede any such provisions in any employment agreement
entered into between the Executive and the Company.

          (e)  Choice of Law.  The validity, interpretation, construction and
               -------------
performance of this Agreement shall be governed by the laws of the State of
California.

          (f)  Severability.  The invalidity or unenforceability of any 
               ------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

          (g)  No Assignment of Benefits.  The rights of any person to payments
               -------------------------
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection shall be
void.

          (h)  Employment Taxes.  All payments made pursuant to this Agreement
               ----------------
will be subject to withholding of applicable income and employment taxes.

          (i)  Assignment by Company.  The Company may assign its rights under
               ---------------------
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment.  In the case
of any such assignment, the term "Company" when used in a section of this
Agreement shall mean the corporation that actually employs the Executive.

          (j)  Counterparts.  This Agreement may be executed in counterparts,
               ------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.

                                      -6-
<PAGE>
 
          IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.



COMPANY:                        COST PLUS, INC.


                                /s/ Murray H. Dashe
                                --------------------------------------------
                                By: MURRAY H. DASHE

                                        CEO
                                --------------------------------------------


Executive                       /s/ Kathi P. Lentzsch
                                ------------------------------------
                                KATHI LENTZSCH

                                      -7-