July 24, 1998



Mr. Evert I. Schlinger
1944 Edison Street
Santa Ynez, CA  93460

Re:     Consulting Agreement

Dear Mr. Schlinger:

         The Leather Factory, a Delaware corporation (the "Company"), desires to
retain your services  during the following  eighteen (18) months for the purpose
of (a) assisting the Company in analyzing  financing  alternatives  available to
the Company,  and (b)  assisting  the Company in  evaluating  locations  for the
Company's distribution units in Portland, Oregon and other locations about which
you have  personal  knowledge.  These  services  will be  performed  as and when
required  by  the  Company.  These  services  shall  be  performed  by you as an
independent  contractor,  and you shall not be an employee of the  Company.  The
Company acknowledges that it shall not require you to render services under this
agreement at such times that  prevent you from  performing  your other  business
activities.

         As the sole  consideration  for the services  required  hereunder,  the
Company agrees to execute and deliver a Stock Purchase  Warrant (the  "Warrant")
in the form attached as Exhibit "A"  contemporaneously  with your  acceptance of
this letter  agreement.  You represent and warrant to the Company:  (a) you have
received copies of the Company's most recent Annual Report  including the annual
report on Form 10-K,  the Company's  Proxy  Statement for the annual  meeting of
stockholders  held May 21,  1998,  and the  Company's  Form  10-Q for the  first
quarter of 1998, (b) you have had the  opportunity to meet with  representatives
of the Company to ask  questions and receive  information  regarding the Company
and its prospects,  (c) you are aware that neither the Warrant nor the shares of
the  Company's  common  stock  issuable  upon  exercise of the  Warrant  will be
registered  under the  Securities  Act of 1933,  as amended,  or any  applicable
securities  laws, and transfer of these  securities will be limited as stated in
the Warrant,  including the  limitations  on transfer of  restricted  securities
contained in Rule 144  promulgated  by the  Securities  and Exchange  Commission
under the Securities Act of 1933, as amended,  (d) you are acquiring the Warrant
and any common  stock issued upon its exercise for your own account and not with
a view to the distribution thereof, (e) you are capable of evaluating the merits
of this investment and bearing the risks of the investment,  and (f) you are not
relying on the  Company or any of its  officers,  directors,  or  advisors  with
respect to determining the federal and state tax consequences of this Consulting
Agreement,  the delivery of the Warrant to you, any  subsequent  exercise of the
Warrant,  or the  disposition  of any common stock acquired upon exercise of the
Warrant.


<PAGE>

         Notwithstanding  anything herein to the contrary, you agree the (v) you
shall be an independent  contractor of the Company and not an employee,  (w) you
shall not have the authority to bind the Company in any capacity,  (x) you shall
not be entitled to any  compensation  or other  benefits for your services under
this agreement, other than the rights evidenced by the Warrant, (y) you shall be
responsible  for the payment of all taxes related to the services to be rendered
and the Company  shall not have any  obligation  to withhold any taxes for which
you may be liable,  and (z) you agree that all services to be performed shall be
consistent with the terms hereof.

         If the foregoing is acceptable to you,  please indicate your acceptance
in the space provided below.

                               Sincerely yours,

                               THE LEATHER FACTORY, INC.



                               By:  /s/ Wray Thompson
                                    ----------------------------------
                                    Wray Thompson, Chairman, President
                                    and Chief Executive Officer


ACCEPTED:


/s/ Evert I. Schlinger
----------------------
Evert I. Schlinger