EMPLOYMENT AGREEMENT

                                 by and between

                           DUCKWALL-ALCO STORES, INC.

                                       and

                                   BRUCE DALE

                            Effective March 28, 2005



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                              EMPLOYMENT AGREEMENT

      This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective as of March 28, 2005, by and between Ducwall-ALCO Stores, Inc., a
Kansas corporation (the "Company"), and Bruce Dale, an individual.

                              W I T N E S S E T H:

      WHEREAS, the Company desires to employ Bruce Dale as the Company's
President and Chief Executive Officer (hereinafter the "CEO") on the terms and
conditions set forth herein;

      NOW, THEREFORE, the Company and the CEO, each intending to be legally
bound, hereby mutually covenant and agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

      The following terms used in this Agreement shall have the meanings set
forth below:

           "Earned Obligations" shall mean, as of the date of Termination of
Employment, the sum of (A) the CEO's aggregate Base Salary through such date to
the extent not theretofore paid, plus (B) all vacation pay, expense
reimbursements and other cash entitlements earned by the CEO hereunder as of
such date to the extent not theretofore paid.

           "Base Salary" shall mean the amount set forth in Section 3.1.

           "Board" shall mean the board of directors of the Company.

           "Cause" shall mean (i) the CEO's material violation of any of
Sections 2.3, 4.1, 4.2 or 4.3 of this Agreement; (ii) the CEO engaging in
conduct which is fraudulent or illegal with respect to the Company or any of its
subsidiaries; (iii) the CEO's gross negligence in the performance or
nonperformance of his duties or responsibilities hereunder; (iv) the CEO's
engagement in misconduct which is materially injurious or materially damaging to
the Company or any of its subsidiaries or the reputation of the Company or any
of its subsidiaries; (v) the CEO's conviction of, or plea of nolo contendere to,
a felony; (vi) failure to cooperate with regulatory or legal proceedings; or
(vii) material breach of Company policy.

           "Common Stock" shall mean the common stock of the Company.

           "Competitor" shall have the meaning set forth in Section 4.2.

           "Confidential Information" shall have the meaning set forth in
Section 4.3.

           "Change of Control" shall mean a change in control of a nature as set
forth in the Duckwall-ALCO Stores, Inc. Incentives Stock Option Plan of 2003, or
as may be amended ("ISO Plan").

           "Disability" shall mean CEO's permanent disability or incapacity as
determined in accordance with the Company's disability insurance policy, if such
a policy is then in effect, or if no such policy is then in effect, such
permanent disability or incapacity shall be determined by the Board in its good
faith judgment based upon inability to perform the essential functions of his
position, with



<PAGE>



reasonable accommodation by the Company, for a period in excess of 180 days
during any period of 365 calendar days.

           "Good Reason" means assignment of the CEO to duties and
responsibilities that are substantially inconsistent with the scope of the
duties and responsibilities of President and CEO or the Company has a Change in
Control.

           "Person" shall mean an individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
other entity or governmental or other agency or political subdivision thereof.

           "Term" shall mean the period beginning on the date of this Agreement
and ending as provided in Section 2.2.

           "Termination of Employment" shall mean (i) the CEO's death or
Disability, (ii) termination by the Company of the CEO's employment for Cause or
without Cause, (iii) resignation by the CEO from the employ of the Company, (iv)
retirement of the CEO or (v) expiration of the Term.

                                   ARTICLE II
                               EMPLOYMENT AND TERM

     2.1 Employment. The Company hereby offers to employ the CEO as the
President and CEO of the Company and each of its subsidiaries, and the CEO
hereby accepts such employment, for the Term.

     2.2 Term. The Term shall commence on the date hereof and end on April 1,
2007 ("Original Term"). The Term shall automatically extend for successive one
year periods (each, a "Supplemental Term") following the expiration of the
Original Term unless either party delivers written notice to the other party no
later than 60 days preceding the end of the Original Term or any Supplemental
Term, as the case may be, of intent not to renew. See also Article V. No
Supplemental Term may start after the date of Termination of Employment.

     2.3 Duties. The CEO shall have all powers, duties and responsibilities
commensurate with his position as set forth in Section 2.1 hereof or as may be
assigned by the Board from time to time (provided any such powers, duties and
responsibilities assigned by the Board are commensurate with such position). The
CEO shall devote substantially all of his business time, attention and energies
to the performance of his duties hereunder. Notwithstanding the foregoing,
nothing in this Agreement shall restrict the CEO from managing his personal
investments, personal business affairs and other personal matters, or serving on
civic or charitable boards or committees, provided that none of such activities
interferes with the performance of his duties and responsibilities hereunder or
conflicts or competes with the interests of the Company or its subsidiaries. The
CEO shall not serve in the Board of Directors or similar governing body of any
for-profit Person without the consent of the Board, which consents will not be
unreasonably withheld.

                                  ARTICLE III
                            COMPENSATION AND BENEFITS

     3.1 Base Salary. For services performed by the CEO for the Company and its
subsidiaries pursuant to this Agreement, the Company shall pay the CEO an
initial Base Salary of Three Hundred Twenty Five Thousand Dollars ($325,000) per
year, payable in accordance with the Company's regular payroll practices and
subject to annual review by the Board to consider increases. The Company may
increase or decrease the Base Salary for any Supplemental Term.


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     3.2 Bonus. The Company shall have a bonus plan for the CEO as follows: If
the Company has a Return on Equity ("ROE") as later defined of at least six
percent (6%) after the completion of fiscal year 2006, and such percentage
thereafter as set forth by the Board, CEO will receive a bonus of fifty percent
(50%) of his base pay, all paid within 30 days after determination. ROE is
defined for any completed fiscal year as (Earnings from continuing operation
before discontinued operations excluding cumulative change in accounting and
one-time termination benefits recognized in accordance with FAS 146) divided by
(stockholders' equity beginning of year plus stockholders' equity end of year
divided by two). The Board, at its sole discretion may pay, or not pay any other
bonus as it determines. CEO agrees to reimburse the Company and/or have the
Company offset any payments due to CEO to the extent that any bonuses are paid
on financial information which is later determined to be materially overstated
and results in any financial restatement, which would have lessened the amount
paid to CEO.

     3.3 Other Benefits. In addition to the Base Salary and participation in the
Company's bonus plans, the CEO shall also be entitled to the following:

        (a)  Participation in Benefit Plans. The CEO shall be entitled to
participate in the executive-level benefit arrangements maintained by the
Company for their executives generally or as modified herein. The CEO shall also
be entitled to participate in all other welfare and benefit plans maintained by
the Company and/or its subsidiaries for their respective employees generally.

        (b)  Vacation. The CEO shall be entitled to four (4) weeks of paid
vacation during a calendar year and shall have paid holidays consistent with the
Company's practices. Any unused vacation shall not carry over and CEO will not
receive additional compensation for same.

        (c)  Options. CEO will receive options to purchase One Hundred Thousand
(100,000) Company shares in accordance with the terms and conditions of the
Company's 2003 Stock Option Plan ("ISO Plan"). The grant date is March 28, 2005.
Vesting of the One Hundred Thousand (100,000) shares shall be pro rata over a
four (4) year period, twenty-five percent (25%) after the end of the first year
and twenty-five percent (25%) after the end of years 2, 3 and 4. The market
price at the date of the grant is Eighteen and 25/100 Dollars ($18.25) per
share. The options will have both qualified and non-qualified option attributes
as set forth in the ISO Plan.

        (d)  Reimbursement. The Company will reimburse CEO an amount not to
exceed Sixty Six Thousand Dollars ($66,000) as and for any real estate
commission paid by CEO in the sale of his residence in Bloomfield Hills,
Michigan, said sum to be paid within ten (10) days of submission of receipt of
payment.

                                   ARTICLE IV
                                    COVENANTS

     4.1 Non-Interference. For a period ending on the second anniversary of the
Termination of Employment of the CEO, the CEO agrees to refrain from, directly,
indirectly or as an agent on behalf of or in conjunction with any Person, (i)
soliciting or encouraging any employee of the Company or its subsidiaries who is
employed in an executive, managerial, administrative or professional capacity or
who possesses Confidential Information (as defined below), to leave the
employment of the Company or its subsidiaries or (ii) soliciting any customer of
the Company or any of its subsidiaries on behalf of any Competitor.

     4.2 Noncompetition. For a period ending on the second anniversary of the
Termination of Employment of the CEO, the CEO will not, either directly or
indirectly, own, manage, operate, join or control or participate (or serve as a
consultant or in a similar position) in the ownership, management,


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operation or control of, any business, entity, firm, partnership, corporation or
other Person, whether private, governmental or quasi-governmental
("Competitor"), other than the Company and its subsidiaries, which is engaged,
directly or indirectly, in any state where the Company has a retail
establishment, including (i) the business of the development, design,
production, supply, sale or distribution of small variety or discount retail
stores or (ii) any other business engaged in or being developed by the Company
or its subsidiaries in which the CEO has played a material role in the
acquisition, development or management of such business; provided, however, that
the CEO will not be deemed to engage in any of the businesses of any publicly
traded corporation solely by reason of his ownership of less than 2% of the
outstanding stock of such Person or by serving as a director on the board of
directors of a customer or supplier of the Company at the request of the Board.

     4.3 Nondisclosure of Confidential Information.

          (a) Company Information. In the performance of his duties, the CEO has
previously had, and may be expected in the future to have, access to Company
proprietary information, technical data, trade secrets or know-how, including,
but not limited to, research, product plans, products, methods, strategies,
services, customer lists, prospective customer lists, customer records,
telephone lists and all other information with respect to customers (including,
but not limited to, customers of the Company on whom he called or with whom he
became acquainted during the term of his employment), documents, notes, working
papers, records, systems, contracts, agreements, market data and related
information, software, developments, inventions, processes, formulas,
technology, designs, drawings, engineering information, hardware configuration
information, marketing plans, finances, pricing and credit documents and
policies, service development techniques or plans, business acquisition plans,
new personnel acquisition plans or other business information presently owned or
at any time hereafter developed by the Company or its subsidiaries, agents or
consultants or used presently or at any time hereafter in the course of the
business of the Company and its subsidiaries, that are not otherwise part of the
public domain (collectively, the "Company Information"). All such Company
Information is considered secret and has been and/or will be disclosed to the
CEO in confidence, and the CEO acknowledges that, as a consequence of his
employment and position with the Company and its subsidiaries, the CEO will have
access to and become acquainted with Company Information. Except in the
performance of his duties to the Company or its subsidiaries, the CEO shall not,
during the Term and at all times thereafter, directly or indirectly for any
reason whatsoever, disclose or use any such Company Information. All records,
files, drawings, documents, equipment and other tangible items, wherever
located, relating in any way to or containing Company Information, which the CEO
has prepared, used or encountered or shall in the future prepare, use or
encounter, shall be and remain the Company's sole and exclusive property and
shall be included in the Company Information. Upon termination of this
Agreement, or whenever requested by the Company, the CEO shall promptly deliver
to the Company any and all of the Company Information and copies thereof, not
previously delivered to the Company or its subsidiaries, that may be in the
possession or under the control of the CEO. The foregoing restrictions shall not
apply to the use, divulgence, disclosure or grant of access to Confidential
Information to the extent, but only to the extent, (i) expressly permitted or
required pursuant to any other written agreement between or among the CEO and
the Company (and/or any of its subsidiaries), (ii) such Company Information
which has become publicly known and made generally available through no wrongful
act of the CEO or of others who were under confidentiality obligations as to the
item or items involved, (iii) the CEO's general skills and education, and
know-how of broad application known to the CEO or independently developed by the
CEO prior to the CEO's employment by the Company or (iv) the CEO is required to
disclose Company Information by or to any court of competent jurisdiction or any
governmental or quasi-governmental agency, authority or instrumentality of
competent jurisdiction, provided, that the CEO shall, prior to any such
disclosure, immediately notify the Company of such requirement and provided
further, that the Company shall have the right, at its expense, to object to
such disclosures and to seek confidential treatment of any Company Information
to be so disclosed on such terms as it shall determine.


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          (b) Third Party Information. In the performance of his duties, the CEO
has previously had, and may be expected in the future to have, access to
confidential or proprietary information with respect to third parties which is
subject to a duty on the Company's part to maintain the confidentiality of such
information and to use it only for certain limited purposes (the "Third Party
Information"). Except in the performance of his duties to the Company or its
subsidiaries, the CEO shall not, during the Term and at all times thereafter,
directly or indirectly for any reason whatsoever, disclose or use any such Third
Party Information.

     4.4 Enforcement.

          (a) The CEO acknowledges that violation of any of the covenants and
agreements set forth in this Article IV would cause the Company or any of its
subsidiaries irreparable damage for which the Company or any of its subsidiaries
cannot be reasonably compensated in damages in an action at law, and therefore
in the event of any breach by the CEO of this Article IV, the Company or its
subsidiaries shall be entitled to make application to a court of competent
jurisdiction for equitable relief by way of injunction or otherwise (without
being required to post a bond). CEO agrees to pay all of the Company's court
costs and attorneys' fees incurred in enforcing its rights under this Article IV
and all other obligations of CEO under this Employment Agreement. This provision
shall not, however, be construed as a waiver of any of the rights which the
Company or its subsidiaries may have for damages under this Agreement or
otherwise, and all of the Company's and its subsidiaries' rights and remedies
shall be unrestricted. This Article IV shall survive termination of this
Agreement or Termination of Employment for any reason whatsoever.

          (b) If any of the provisions of this Agreement shall otherwise
contravene or be invalid under the laws of any state or other jurisdiction where
it is applicable but for such contravention or invalidity, such contravention or
invalidity shall not invalidate all of the provisions of this Agreement, but
rather the Agreement shall be reformed and construed, insofar as the laws of
that state or jurisdiction are concerned, as not containing the provision or
provisions, but only to the extent that they are contravening or are invalid
under the laws of that state or jurisdiction, and the rights and obligations
created hereby shall be reformed and construed and enforced accordingly. In
particular, if any of the covenants or agreements set forth in Article IV, or
any part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, or otherwise, the parties hereby
expressly agree that the court making such determination shall have the power to
reduce the duration and/or the areas of such provision or otherwise limit any
such provision, and, in its reduced form, such provision shall then be
enforceable. The parties intend that each covenant set forth in this Article IV
shall be deemed to be a series of separate covenants, one for each and every
county and political subdivision to which it is applicable.

          (c) The CEO understands that the provisions of this Article IV may
limit his ability to earn a livelihood in a business similar to the business of
the Company and its subsidiaries but nevertheless agrees and hereby acknowledges
that such provisions do not impose a greater restraint than is necessary to
protect the goodwill or other business interests of the Company and its
subsidiaries and the consideration provided under this Agreement, including,
without limitation, any amounts or benefits provided hereunder, is sufficient to
compensate the CEO for the restrictions contained in this Article IV. In
consideration of the foregoing and in light of the CEO's education, skills and
abilities, the CEO agrees that he will not assert, and it should not be
considered, that any provisions of this Article IV prevented him from earning a
living or otherwise are void, voidable or unenforceable or should be voided or
held unenforceable.


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          (d) Each of the covenants of this Article IV is given by the CEO as
part of the consideration for this Agreement and as an inducement to the Company
to enter into this Agreement and accept the obligations hereunder.

                                   ARTICLE V
                                  TERMINATIONS

     5.1 Termination of Agreement. At the Termination of Employment, Sections
4.3, 4.4 and 5.3 will survive, and Sections 4.1 and 4.2 will survive only to the
extent set forth in this Article V.

     5.2 Procedures Applicable to Termination of Employment. The CEO may resign
upon notice to the Board. The CEO must, however, give at least thirty (30) days
advance notice of his resignation. The Board may notify the CEO that his
employment is terminated, with or without Cause, or for Disability and in such
case the date of Termination of Employment will be the date such notice is
given.

     5.3 Obligations of the Company and the CEO Upon Termination of Employment.

          (a) Termination In the Event of Death or Disability.

               (i) In the event of the CEO's death or Disability, the Company
shall pay to the CEO or the CEO's heirs, estate or legal representatives, as the
case may be, the following:

                    (A) all Earned Obligations in a lump sum within thirty (30)
days after the date of Termination of Employment; and

                    (B) any benefits earned by the CEO as of the date of
Termination of Employment under all qualified and nonqualified retirement,
pension, profit sharing and similar plans of the Company to such extent, in such
manner and at such time as are provided under the terms of such plans and
arrangements.

               (ii) In the event of Termination of Employment as a result of the
CEO's Disability, the Company shall keep in force existing health and dental
benefits for the CEO and his dependents for a period of twelve (12) months from
the date of Termination of Employment on the basis in effect at the time of such
Termination of Employment.

               (iii) In the event of Termination of Employment as a result of
the CEO's Disability, the CEO agrees that the covenants made by the CEO set
forth in Sections 4.1 and 4.2 of this Agreement will remain in effect for the
period specified therein.

          (b) Termination Without Cause, for Good Reason, or Company's Failure
to Extend.

               (i) In the event that the Company terminates the CEO's employment
without Cause or the CEO terminates his employment for Good Reason (but
excluding Termination of Employment by reason of the CEO's death or Disability),
or the Company fails to extend in accordance with Section 2.2, the Company shall
pay to the CEO the following:

                    (A) all Earned Obligations in a lump sum within thirty (30)
days after the date of Termination of Employment;

                    (B) any benefits earned by the CEO as of the date of
Termination of Employment under all qualified and nonqualified retirement,
pension, profit sharing and similar plans of


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the Company to such extent, in such manner and at such time as are provided
under the terms of such plans and arrangements;

                    (C) the Company shall pay to the CEO, subject to applicable
withholding, one additional year of Base Salary paid in accordance with the
Company's regular payroll practices; and

                    (D) the Company shall continue all benefits coverage of the
CEO and his dependents provided under the Company's benefit plans or policies
(or under other benefit plans or policies that provide substantially equivalent
coverage) for the unexpired portion of the Original Term and/or Supplemental
Term.

               (ii) If the CEO obtains other employment that would cause CEO to
violate Section 4.2 were it then in effect during the period the Company remains
obligated to compensate CEO as set forth in this Section 5.3(b), the CEO shall
promptly notify the Company thereof and of the aggregate gross compensation
payable to CEO in respect of such other employment, and the Company shall have
the right to deduct, dollar for dollar, from the amount payable by the Company
to CEO the gross aggregate amount of compensation CEO receives from such other
employment.

               (iii) The CEO agrees that the covenants made by the CEO set forth
in Sections 4.1 and 4.2 of this Agreement will remain in effect for the period
specified therein.

          (c) Other Terminations.

               (i) In the event of Termination of Employment for any other
reason (including a termination for Cause or resignation), the Company shall pay
to the CEO the following:

                    (A) all Earned Obligations in a lump sum within thirty (30)
days after the date of Termination of Employment; and

                    (B) any benefits earned by the CEO as of the date of
Termination of Employment under all qualified and nonqualified retirement,
pension, profit sharing and similar plans of the Company to such extent, in such
manner and at such time as are provided under the terms of such plans and
arrangements.

               (ii) The CEO agrees that the covenants made by the CEO set forth
in Sections 4.1 and 4.2 of this Agreement will remain in effect for the periods
specified therein.

          (d) Exclusivity. The amounts payable to the CEO pursuant to Sections
5.3(a), 5.3(b) and 5.3(c), as the case may be, shall be the CEO's sole remedy in
the event of the Termination of Employment of the CEO, and the CEO waives any
and all rights to pursue any other remedy at law or in equity; provided,
however, that this shall not constitute a waiver of any rights provided under
any federal, state or local laws or regulations relating to discrimination in
employment and provided, further, that nothing in this Section 5.3(d) or
elsewhere in this Agreement is intended to limit the CEO's rights under Company
Plans or applicable law which by their terms survive the applicable Termination
of Employment.


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                                   ARTICLE VI
                               CEO REPRESENTATIONS

     6.1 CEO represents that he is free to enter into this Agreement and that he
has no outstanding agreements which would prohibit him from the execution of
this Agreement and carrying out the responsibilities delegated herein.

                                  ARTICLE VII
                                  MISCELLANEOUS

     7.1 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the heirs and representatives of the CEO and the successors and
assigns of the Company. The Company shall require any successor (whether direct
or indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation, or otherwise), by agreement in form and substance
reasonably satisfactory to the CEO, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform this Agreement if no such succession had taken place.
Regardless of whether such agreement is executed, this Agreement shall be
binding upon any successor of the Company in accordance with the operation of
law, and such successor shall be deemed to be the "Company" for purposes of this
Agreement.

     7.2 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by first class
certified mail, return receipt requested, postage prepaid, addressed as follows:

          (a) if to the Board or the Company, to:

                     Board of Directors of Duckwall-ALCO Stores, Inc.
                     c/o Stranger Valley
                     P.O. Box 860435
                     Shawnee, KS 66286
                     Attention:   Warren H. Gfeller, Chairperson
                     Telecopy: _______________

          (b) if to the CEO, to:

                     Bruce Dale
                     Duckwall-ALCO Stores, Inc.
                     401 Cottage Street
                     Abilene, KS 67410-0219

Any such address may be changed by written notice sent to the other party at the
last recorded address of that party.

     7.3 Tax Withholding. The Company shall provide for the withholding of any
taxes required to be withheld under federal, state and local law (other than the
employer's portion of such taxes) with respect to any payment in cash and/or
other property made by or on behalf of the Company to or for the benefit of the
CEO under this Agreement or otherwise. The Company may, at its option: (i)
withhold such taxes from any cash payments owing from the Company to the CEO or
(ii) make other satisfactory arrangements with the CEO to satisfy such
withholding obligations.


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     7.4 No Assignment; No Third-Party Beneficiaries. Except as otherwise
expressly provided in Section 6.1 herein, this Agreement is not assignable by
any party, and no payment to be made hereunder shall be subject to alienation,
sale, transfer, assignment, pledge, encumbrance or other charge. No Person shall
be, or deemed to be, a third-party beneficiary of this Agreement.

     7.5 Execution in Counterparts. This Agreement may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.

     7.6 Governing Law; Jurisdiction. The validity of this Agreement and the
interpretation and performance of all its terms shall be governed by and
construed in accordance with the laws of the State of Kansas, without regard to
the choice of law rules thereof. Each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any federal court sitting in the
District of Kansas in the event any dispute that the parties fail to resolve
arises out of this Agreement, (b) agrees that it shall not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court, and (c) agrees that it shall not bring any action relating to this
Agreement in any court other than courts set forth above. In any such
proceeding, the parties agree to accept service of process by mail at the
addresses herein provided for notice.

     7.7 Headings. The headings in this Agreement are for convenience of
reference only and shall not be construed as part of this Agreement or to limit
or otherwise affect the meaning hereof.

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

                               DUCKWALL-ALCO STORES, INC.

                               By:  /s/ Warren Gefeller
                                    -------------------------------
                               Its:  Chairman
                                    -------------------------------

                               CEO

                               /s/ Bruce Dale
                               ------------------------------------
                               Bruce Dale



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