<PAGE>

                                 Exhibit 10.1
                             EMPLOYMENT AGREEMENT

     SPORT CHALET, INC., a Delaware corporation ("Employer"), and DENNIS D.
TRAUSCH ("Executive"), in consideration of the mutual promises made herein, do,
as of October 1, 1999, agree as follows:

           A.   Executive has served as the Executive Vice President since June
1988; and

           B.   The Employer desires to be assured of the continued association
and services of Executive in order to take advantage of his experience,
knowledge and abilities in Employer's business, and is willing to employ
Executive, and Executive desires to be so employed, on the terms and conditions
set forth in this Agreement;

1.   TERM OF EMPLOYMENT

     1.1   Specified Term.  Employer hereby employs Executive, and Executive
           --------------
hereby accepts employment with Employer, for an initial term beginning on
October 1, 1999 and ending at the close of business on March 31, 2000.
Executive's employment hereunder shall automatically renew for succeeding
twelve-month periods, unless notice of termination is given by either party at
least 30 days prior to the end of the initial term or any renewal term.
Executive's employment may be subject to earlier termination as otherwise
provided in this Agreement.

     1.2   "Employment Term."  The phrase "Employment Term" shall mean the
            ---------------
entire period of Executive's employment by Employer hereunder, whether for the
periods provided above, or whether terminated earlier as hereinafter provided or
extended by mutual agreement between Employer and Executive.

2.   DUTIES

     2.1   General Duties.  Executive shall serve as the Executive Vice
           --------------
President of Employer. In this capacity, Executive shall, to the best of his
ability, perform all services, acts or things (i) necessary or advisable to
manage and conduct the business of Employer as it relates to store and
distribution center operations, store selection and store leasing, including
human resources and customer service; (ii) as are provided in Employer's
Certificate of Incorporation and Bylaws, (iii) as may be assigned by Employer's
President, Chief Executive Officer or Board of Directors or (iv) as may be
specified in the job description or performance objectives adopted from time to
time by Employer's Board of Directors, President and Chief Executive Officer.
Executive shall perform such duties subject at all times to the policies of
Employer and its Board of Directors and the direction of Employer's President
and Chief Executive Officer. Executive shall report to Employer's President and
Chief Executive Officer.

     2.2   Conduct of Executive.  Executive shall at all times during the
           --------------------
Employment Term conduct himself in a manner consistent with his position with
Employer and shall not knowingly perform any act contrary to the best interests
of Employer.

     2.3   Devotion to Employer's Business.
           -------------------------------

           (a)  Executive shall devote the full working portion of his entire
productive time, ability and attention to the business of Employer during the
Employment Term.

           (b)  During the Employment Term, Executive shall not engage in any
other business duties or pursuits whatsoever, or directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, without the prior
consent of Employer's Board of Directors, President or Chief Executive Officer;
provided, however, that the expenditure of reasonable amounts of time for
--------
educational, charitable or professional activities shall not be deemed a breach
of this Agreement

                                     -12-
<PAGE>

if those activities do not materially interfere with the services required under
this Agreement and shall not require the prior written consent of Employer as
set forth above.

           (c)  This Agreement shall not be interpreted to prohibit Executive
from making passive personal investments or conducting private business affairs
if those activities do not materially interfere with the services required under
this Agreement. Notwithstanding the foregoing, Executive shall not, to the best
of his knowledge, directly or indirectly, acquire, hold or retain any interest
in any vendor or supplier of Employer or in any business competing with or
similar in nature to the business of Employer; provided, however, that Executive
                                               --------
shall have a reasonable period from the date hereof to dispose of any such
prohibited investments.

     2.4   Competitive Activities.  Except as otherwise expressly provided in
           ----------------------
this Agreement, during the Employment Term, Executive shall not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer or director, or in any other individual
or representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of Employer.

     2.5   Trade Secrets.
           -------------

           (a)  Executive shall not, without the prior written consent of
Employer in each instance, disclose or use in any way, either during his
employment by Employer or thereafter, except as required in the course of such
employment, any confidential business or technical information or trade secret
of Employer acquired in the course of such employment, whether or not
patentable, copyrightable or otherwise protected by law, and whether or not
conceived of or prepared by him (collectively, the "Trade Secrets"), including,
without limitation, any confidential information concerning customer lists,
products, procedures, operations, investments, financing, costs, employees,
purchasing, accounting, marketing, merchandising, sales, salaries, pricing,
profits and plans for future development, the identity, requirements,
preferences, practices and methods of doing business of specific parties with
whom Employer transacts business, and all other information which is related to
any product, service or business of Employer, other than information which is
generally known in the industry in which Employer transacts business or is
acquired from public sources or was known to Executive prior to his employment
by Employer; all of which Trade Secrets are the exclusive and valuable property
of Employer.

           (b)  All files, accounts, records, documents, books, forms, notes,
reports, memoranda, studies, compilations of information, correspondence and all
copies, abstracts and summaries of the foregoing, and all other physical items
related to Employer, other than a merely person item, whether of a public nature
or not, and whether prepared by Executive or not, are and shall remain the
exclusive property of Employer and shall not be removed from the premises of
Employer except as required in the course of Executive's employment, without the
prior written consent of Employer in each instance, and the same shall be
promptly returned to Employer by Executive on the expiration or termination of
his employment or at any time prior thereto upon the request of Employer.

           (c)  Executive hereby acknowledges and agrees that it would be
difficult to fully compensate Employer for damages resulting from the breach or
threatened breach of Sections 2.4 or 2.5 and, accordingly, that Employer shall
be entitled to temporary and injunctive relief, including temporary restraining
orders, preliminary injunctions and permanent injunctions, to enforce such
provisions without the necessity of proving actual damages and without the
necessity of posting any bond or other undertaking in connection therewith.
This provision with respect to injunctive relief shall not, however, diminish
Employer's right to claim and recover damages.

3.   COMPENSATION

     3.1   Compensation.  As compensation for the services to be performed
           ------------
hereunder, Executive shall receive a salary in the amount of One Hundred Seventy
Thousand Dollars ($170,000) per annum, payable in arrears in equal installments
not less than once per month on the first business day of each month with
respect to the

                                     -13-
<PAGE>

preceding calendar month (or part thereof) of employment during the Employment
Term. Executive shall receive such increases in salary, if any, as may be
determined by the Board of Directors in its sole discretion.

     3.2   Severance.
           ---------

           (a)  Upon the termination of Executive's employment hereunder during
the Covered Period, which termination is initiated either (i) by Employer other
than for Cause or (ii) by Executive by reason of a Change of Duties, Employer
shall continue to pay Executive's Base Salary to Executive for a period of
twelve months following the date of termination on such dates as Executive's
salary otherwise would have been paid had such termination not occurred. The
aggregate amount paid under the preceding sentence is referred to herein as the
"Severance Amount." The Severance Amount shall be paid as severance and only
upon execution by Executive of Employer's standard form of Severance Agreement
and Release. Payment of the Severance Amount shall be in lieu of all other
claims, damages or liabilities Executive might otherwise assert against
Employer, including, without limitation, those for breach of this Agreement by
Employer. All capitalized terms used in this Section 3.2 shall have the meanings
set forth on Exhibit A.

           (b)  It is the intention of the parties that any payment of the
Severance Amount shall not constitute "excess parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and
any regulations thereunder. If the independent accountants acting as auditors
for Employer on the date of a Change of Control (or another accounting firm
designated by them) determine that any payment of the Severance Amount may
constitute "excess parachute payments," the payments may be reduced to the
maximum amount which may be paid without the payments being "excess parachute
payments." The determination shall take into account (i) whether the payments
are "parachute payments" under Section 280(3) and, if so, (ii) the amount of
payments under this Agreement that constitutes reasonable compensation under
Section 280G. Nothing contained in this Agreement shall prevent Employer, after
a Change of Control, from agreeing to pay Executive compensation or benefits in
excess of those provided in this Agreement.

     3.3   Tax Withholding.  Employer shall have the right to deduct or withhold
           ---------------
from any amounts due to Executive hereunder (including, without limitation, the
Severance Amount) any and all federal, state or local taxes, withholdings and
deductions now applicable or that may be enacted and become applicable in the
future, including, but not limited to, federal income and Social Security taxes.

     3.4   Profit Sharing.  Executive shall be eligible to participate in such
           --------------
executive bonus programs as Employer may establish from time to time. Under the
"Senior Management Bonus Plan" currently in effect, Executive's maximum target
annual bonus shall be thirty-five percent (35%) of his base salary for the
applicable fiscal year payable pursuant to Section 3.1.

     3.5   Stock Options.  Executive has been granted Non-Qualified Stock
           -------------
Options ("NQSOs") to purchase Employer's common stock on the terms set forth on
Exhibit B and in accordance with Employer's 1992 Incentive Award Plan as amended
and a Key Employee Stock Option Incentive Award Agreement which is incorporated
herein by this reference.

     3.6   Annual Vacation.  Executive shall be entitled to vacation or personal
           ---------------
leave in accordance with Employer's policies for executive vacations for a
period of up to four calendar weeks per year with prior approval.

     3.7   Automobile Allowance.  Employer shall pay to Executive a monthly
           --------------------
automobile allowance of $900.

     3.8   Medical Coverage.  Employer shall include Executive and his immediate
           ----------------
family in such health care plans as may be provided to executive officers of
Employer generally and under the same terms and conditions.

     3.9   Life Insurance.  Employer shall provide to Executive such life
           --------------
insurance, if any, as is currently provided to executive officers of Employer
generally and under the same terms and conditions.

                                     -14-
<PAGE>

     3.10  Qualified Plans.  Employee shall be entitled to participate in
           ---------------
Employer's qualified plans in accordance with the terms and conditions of the
plan documents.

     3.11  Reimbursement of Business Expenses.  Employer shall promptly
           ----------------------------------
reimburse Executive for all reasonable and necessary business expenses incurred
by Executive in connection with the business of Employer subject to compliance
by Executive with Employer's Standard Operating Procedures with respect to the
amount, documentation and verification of such expenses as the same may be
amended from time to time.

     3.12  Tax Consulting.  Employer shall reimburse Executive for all fees and
           --------------
costs for personal tax and financial advisory services incurred by Executive up
to $750 per year.

4.   TERMINATION

     4.1   At Will Relationship.  Employer and Executive each hereby
           --------------------
acknowledges and agrees that, except as expressly set forth in Section 4.2, (i)
as provided in Employer's employment policy, Executive's relationship with
Employer under this Agreement is AT WILL and can be terminated at the option of
either Executive or Employer in his or its sole and absolute discretion, for any
or no reason whatsoever, with or without cause, (ii) no representations,
warranties or assurances have been made concerning the length of such
relationship or the aggregate amount of compensation to be received by Executive
and (iii) after the termination of his employment by Employer, Executive shall
have no right, title or interest in or claim to any revenues received by
Employer from any person for any goods sold or services rendered by Employer to
such person, whether or not Executive was the cause, in whole or in part, for
such person to purchase such goods from Employer or to retain Employer to
perform such services.

     4.2   Duties Upon Termination.  In the event that Executive's employment by
           -----------------------
Employer under this Agreement is terminated, neither Employer nor Executive
shall have any remaining duties or obligations hereunder, except that (i)
Employer shall promptly pay to Executive, or his estate, all reimbursable
expenses incurred by Executive hereunder as of such date and such compensation
as is due pursuant to Sections 3.1 and 3.4, prorated through the date of
termination, (ii) Employer shall promptly provide to Executive such severance as
is due pursuant to Section 3.2 and (iii) Executive shall continue to be bound by
Section 2.5.

5.   GENERAL PROVISIONS

     5.1   Notices.  Any notices to he given hereunder by either party to the
           -------
other shall be in writing and may he transmitted by personal delivery or by
mail, registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses appearing on
the signature pages hereof, but each party may change that address by written
notice in accordance with this section. Notices delivered personally shall be
deemed communicated as of the date of actual receipt; mailed notices shall be
deemed communicated as of the third day following the date of mailing.

     5.2   Arbitration.  Any controversy between Employer and Executive
           -----------
involving the construction or application of any of the terms, provisions, or
conditions of this Agreement shall on the written request of either party served
on the other be submitted to arbitration. Arbitration shall comply with and be
governed by the provisions of the California Arbitration Act and that certain
Agreement to Arbitrate Claims entered into by Employer and Executive as of the
date hereof, which Agreement is incorporated herein by this reference.

     5.3   Attorneys' Fees and Costs.  If any legal action based in contract law
           -------------------------
is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which that party may be
entitled. This provision shall be construed as applicable to the entire
contract.

     5.4   SEC Compliance.  Executive acknowledges that concurrently herewith he
           --------------
has been provided with a copy of and will abide by the Employer's Statement of
Company Policy Re: Securities Trades by Company

                                     -15-
<PAGE>

Personnel as the same may be amended from time to time by Employer, which
Statement is incorporated herein by this reference.

     5.5   Entire Agreement.  This Agreement, together with its exhibits,
           ----------------
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Executive by Employer and
contains all of the covenants and agreements between the parties with respect to
that employment in any manner whatsoever. Each party to this Agreement
acknowledges that no representation, inducements, promises, or agreements,
orally or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and that no other agreement,
statement, or promise not contained in this agreement shall be valid or binding
on either party.

     5.6   Modifications.  Any modification of this Agreement will be effective
           -------------
only if it is in writing and signed by the party to be charged and approved by
the Board of Directors of Employer.

     5.7   Effect of Waiver.  The failure of either party to insist on strict
           ----------------
compliance with any of the terms, covenants, or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant, or
condition, nor shall any waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.

     5.8   Partial Invalidity.  If any provision in this Agreement is held by a
           ------------------
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.

     5.9   Governing Law.  This Agreement shall be governed by and construed in
           -------------
accordance with the laws of the State of California except that, with respect to
matters of corporate governance, the laws of the State of Delaware shall govern.

     5.10  Sums Due Deceased Executive.  If Executive dies prior to the
           ---------------------------
expiration of the Employment Term, any sums that may be due him from Employer
under this agreement as of the date of death shall be paid to Executive's
executors, administrators, heirs, personal representatives, successors, and
assigns.

     5.11  Insurance.  Executive shall be covered by any policy of directors'
           ---------
and officers' liability insurance maintained by Employer.

           IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first set forth above.

              Employer:                 SPORT CHALET, INC.



                                        By   /s/ Craig L. Levra
                                             --------------------------------
                                             Craig L. Levra,
                                             President
                                             920 Foothill Boulevard
                                             La Canada, CA 91011


              Executive:                     /s/ Dennis D Trausch
                                        -------------------------------------
                                        DENNIS D. TRAUSCH

                                     -16-
<PAGE>

                                   EXHIBIT A

                                  Definitions
                                  -----------

1.   Affiliate.  An "Affiliate" shall mean any entity which owns or controls, is
     owned by or is under common ownership or control with, Employer.

2.   Base Salary.  "Base Salary" shall, as determined on the termination date,
     be equal to the greater of:

     (i)   Executive's annual salary, excluding bonuses and special incentive
           payments, on the date of the earliest Change of Control to occur
           during the Covered Period; or

     (ii)  Executive's annual salary, excluding bonuses and special incentive
           payments, on the termination date.

3.   Change in Duties.  A "Change in Duties" shall mean any one or more of the
     following:

     (i)   A significant change in the nature or scope of Executive' authority
           or duties from those applicable to him immediately prior to the date
           on which a Change of Control occurs;

     (ii)  A significant reduction in Executive's Base Salary from that provided
           to him immediately prior to the date on which a Change of Control
           occurs;

     (iii) A diminution in Executive's eligibility to participate in bonus,
           stock option, incentive award and other compensation plans which
           provide opportunities to receive compensation, from the greater of:

           .    the opportunities provided by Employer (including its
                subsidiaries) for executives with comparable duties; or

           .    the opportunities under any such plans under which Executive was
                participating immediately prior to the date on which a Change of
                Control occurs.

     (iv)  A diminution in Executive's benefits (including, but not limited to,
           medical, dental, life insurance and long-term disability plans) and
           perquisites from the greater of:

           .    the benefits and perquisites provided by Employer (including its
                subsidiaries) to executives with comparable duties; or

           .    the benefits and perquisites to which Executive was entitled
                immediately prior to the date on which a Change of Control
                occurs.

     (v)   A change in the location of Executive's principal place of employment
           by Employer (including its subsidiaries) to a location not within Los
           Angeles County; or

     (vi)  A reasonable determination by the Board of Directors of Employer
           that, as a result of a Change in Control and a change in
           circumstances thereafter significantly affecting Executive's
           position, Executive is unable to exercise the authorities, powers,
           function

                                     -17-
<PAGE>

           or duties attached to Executive's position immediately prior to the
           date on which a Change of Control occurs.

4.   Change of Control.  A "Change of Control" shall be deemed to have occurred
     if:

     (i)   Norbert Olberz ceases to be the Chairman of the Board of Employer;

     (ii)  The directors of Employer who were last nominated by the Board of
           Directors for election as directors, for which nomination Norbert
           Olberz voted in favor, cease to constitute a majority of the
           directors of Employer;

     (iii) Any "person," including a "group" as determined in accordance with
           the Section 13(d)(3) of the Securities Exchange Act of 1934 (the
           "Exchange Act"), other than the trust or estate of Norbert or Irene
           Olberz, or an entity wholly owned by any of them, becomes the
           beneficial owner, directly or indirectly, of securities of Employer
           representing 50% or more of the combined voting power of Employer's
           then outstanding Voting Securities and Executive is not a member of
           such group;

     (iv)  As a result of, or in connection with, any tender offer or exchange
           offer, merger or other business combination, sale of assets or
           contested election, or any combination of the foregoing transactions
           (a "Transaction"), Norbert or Irene Olberz or their trusts or estates
           shall cease to own a majority of the outstanding Voting Securities of
           Employer or its successor;

     (v)   Employer is merged or consolidated with another corporation and as a
           result of the merger or consolidation less than 50% of the
           outstanding Voting Securities of the surviving or resulting
           corporation shall then be owned in the aggregate by Norbert or Irene
           Olberz, or their respective trusts or estates or a group of which
           Executive is a member;

     (vi)  A tender offer or exchange offer is made and consummated for the
           ownership of securities of Employer representing 50% or more of the
           combined voting power of Employer's then outstanding Voting
           Securities and in which Executive is not a participant; or

     (vii) Employer transfers substantially all of its assets to another
           corporation which is not a wholly-owned subsidiary of Employer and
           which is not owned in whole or in part by Norbert or Irene Olberz,
           their respective estates or trusts or by Executive.

5.   Covered Period. "Covered Period" shall mean a period of time following the
     occurrence of a Change of Control equal to the lesser of (a) the
     Executive's employment by Employer prior to that Change of Control, or (b)
     three years following the occurrence of the Change of Control.

6.   Voting Securities. "Voting Securities" shall mean any securities which
     ordinarily possess the power to vote in the election of directors without
     the happening of any pre-condition or contingency.

7.   Termination for Cause. Executive's employment shall be deemed to have been
     terminated by Employer for Cause if it shall be terminated for any of the
     following reasons:

     (i)   Executive's continued and willful failure or refusal to perform his
           duties hereunder; or

                                     -18-
<PAGE>

     (ii)  The commission by Executive of any act of dishonesty, fraud,
           misrepresentation or other misconduct in the performance of his
           duties hereunder; or

     (iii) The conviction of Executive of a felony or a crime involving moral
           turpitude or the pleading of no contest by Executive to the same,
           whether or not committed in the course of his employment; provided,
           however, that no such termination shall occur under clauses (i) and
           (ii) unless Executive first shall have received written notice
           specifying the acts or omissions alleged to constitute such failure,
           refusal or act and, if the same can be corrected, it continues after
           Executive shall have had reasonable opportunity to correct it.

                                     -19-
<PAGE>

                                                  Dennis Trausch

                                  Exhibit "B"

<TABLE>
<CAPTION>
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Terms Of NQSOs
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 Date Issued     Number of Shares     Exercise Price     Vesting Schedule   Expiration Date
-------------------------------------------------------------------------------------------
 <S>             <C>                  <C>                <C>                <C>
 03/01/1996                72,000              2.375                    5        03/01/2006
-------------------------------------------------------------------------------------------
 02/04/1998                45,000              4.750                    5        02/04/2008
-------------------------------------------------------------------------------------------
 04/15/1999                20,000              4.438                    3        04/15/2009
-------------------------------------------------------------------------------------------

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Terms of Grants/Awards
-------------------------------------------------------------------------------------------

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 Date Issued     Number of Shares   Price on Grant Date          Restriction Period
-------------------------------------------------------------------------------------------
 05/22/1998                25,000              5.000                    2
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 </TABLE>

                                     -20-