Re: Letter of Engagement for Consulting Services

Exhibit 10.1

[ALIXPARTNERS LLC letterhead]

August 30, 2004

Mr. Glen Shank
Chairman and President
Duckwall-ALCO Stores, Inc.
401 Cottage St.
Abilene, KS 67410-2832

Mr. Jeff Macke
Director
Duckwall-ALCO Stores Inc.
2001 Union St
Suite 320
San Francisco, CA 94123

Mr. Warren Gfeller
Director
5428 Payne Court
Shawnee, KS 66226

Mr. Dennis Mullin
Director
Steel & Pipe Supply Company
555 Poyntz Ave., Suite 111
Manhattan KS, 66502

Re: Letter of Engagement for Consulting Services

Gentlemen:

Thank you for the opportunity to submit this letter of engagement to assist Duckwall-ALCO (“DA” or the “Company”). AlixPartners, LLC (“AlixPartners”) welcomes the opportunity to collaborate with DA in its efforts to improve operating performance and enhance shareholder value. This letter describes an approach that is designed to create a plan for improving the performance of DA. Subsequent work may involve implementation of this plan. The terms of which will be documented in a separate agreement.

This letter outlines the understanding between AlixPartners and DA of the objective, tasks, work product, staffing and economic model for the engagement of AlixPartners to design a program to improve the operating performance of DA.

OBJECTIVE

Based on our discussions, the objective for this effort is clear:

To develop a prioritized action plan that, if successful, can increase the EBITDA of DA, enable DA to compete more effectively, and ultimately increase shareholder value.

TASKS

The tasks associated with this effort will focus in four areas: strategy, finance, operations, and information technology.

We will have a small team led by Mark Toney that will perform the QuickStrike^TM analysis and develop the plan. That team will report directly to a subcommittee of the Board of Directors of DA.

OVERSIGHT

AlixPartners will report directly to the Board subcommittee. Further, Mr. Glen Shank, the Chairman of the Board and President of DA, will work with our team throughout the assessment to ensure that AlixPartners receives accurate information in a timely manner.

WORK PRODUCT

Our work product from Phase One will be in the form of:

STAFFING

Mark Toney will be responsible for the Phase One engagement. Mark will provide project oversight and manage the work efforts of the team. He will be assisted by consultants at various levels, all of whom have a wide range of skills and abilities related to this type of assignment.

We anticipate initially using a team of three on-site consultants for Phase One of the engagement, plus Mr. Toney. We will also leverage our in-house research staff and capabilities, and we may call on other subject matter experts (at no incremental cost to DA) to add to our understanding and capabilities.

ECONOMIC MODEL

The economic model for this engagement is described in Schedule 2. We typically work for a combination of hourly fees and contingent success fees. Due to the nature of the work in this initial phase, we do not believe a success fee approach is appropriate. Instead, we will bill hourly and commit to a fixed cost.

We will require a retainer of $100,000 to be applied against the time charges and expenses specific to the engagement in accordance with Section 2 of the attached General Terms and Conditions.

*        *        *

The terms and conditions set out in the attached Schedules and the General Terms and Conditions form part of and are incorporated by reference herein to this agreement.

Thank you for considering AlixPartners for this important assignment. If these terms meet with your approval, please sign and return the enclosed copy of this letter and wire transfer the amount to establish the retainer.

Sincerely yours,

ALIXPARTNERS, LLC

/s/ Melvin R. Christiansen

Melvin R. Christiansen
Principal

Acknowledged and Agreed to:

DUCKWALL-ALCO STORES, INC.

SCHEDULE 1

DEFINITIONS AND INTERPRETATION