<PAGE>   1
                                                         [Execution Counterpart]


                                AMENDMENT NO. 10


                  AMENDMENT NO. 10 dated as of May 30, 1997, between UNITED
RETAIL GROUP, INC. (the "Company"); each of the Subsidiaries of the Company
identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages
hereto (individually, a "Subsidiary Guarantor" and, collectively, the
"Subsidiary Guarantors" and, together with the Company, the "Obligors"); and THE
CHASE MANHATTAN BANK (successor in interest of The Chase Manhattan Bank, N.A.),
as collateral agent for itself under the Letter of Credit Agreement (the
"Collateral Agent").

                  The Company, the Subsidiary Guarantors and the Collateral
Agent are parties to a Letter of Credit Agreement dated as of February 24, 1992
(as heretofore amended, the "Letter of Credit Agreement"), providing, subject to
the terms and conditions thereof, for letters of credit to be issued by the
Collateral Agent to the Company in an aggregate face amount not exceeding
$25,000,000.

                  The Company has requested the Collateral Agent to consent to
certain amendments to the Letter of Credit Agreement, all on the terms and
conditions set forth herein and, accordingly, the parties hereto agree as
follows:

                  Section 1. Definitions. Terms defined in the Letter of Credit
Agreement are used herein as defined therein unless amended hereby.

                  Section 2. Amendments. Subject to the execution and delivery
hereof by the Company, each Subsidiary Guarantor and the Collateral Agent (and
the payment to the Collateral Agent of the amendment fee referred to in Section
2 of Amendment No. 9 to the Credit Agreement), but effective as of the date
hereof, the Letter of Credit Agreement is hereby amended as follows:

                  A. Fixed Charges Ratio. Section 9.12 of the Letter of Credit
Agreement is hereby amended in its entirety to read as follows:

                  "9.12 Fixed Charges Ratio. The Company will not permit the
         Fixed Charges Ratio on any date during the period from and including
         May 1, 1997 to and including July 5, 1997 to be less than .95 to 1, and
         will not permit the Fixed Charges Ratio on any other date on or after
         February 1, 1997 to be less than 1.0 to 1."




                 Amendment No. 10 to Letter of Credit Agreement
<PAGE>   2
                                      - 2 -




                  B. Cash Flow. Section 9.22 of the Letter of Credit Agreement
is hereby amended in its entirety to read as follows:

                  "9.22 Cash Flow. The Company shall not permit the Cash Flow
         for the following respective periods to be less than the amounts
         indicated below opposite the respective periods:

<TABLE>
<CAPTION>
                           Period                              Amount
                           ------                              ------
<S>                                                       <C>
                  From December 1, 1996
                    through February 1, 1997                $ 1,000,000

                  January 5, 1997
                    through March 1, 1997                  ($ 9,000,000)

                  From February 2, 1997
                    through March 29, 1997                 ($ 1,500,000)

                  From March 2, 1997
                    through May 3, 1997                     $ 3,000,000

                  From March 30, 1997
                    through May 31, 1997                    $ 2,700,000

                  From May 4, 1997
                    through July 5, 1997                    $ 2,100,000

                  From June 1, 1997
                    through August 2, 1997                  $         0

                  From July 6, 1997
                    through August 30, 1997                ($ 4,500,000)

                  From August 3, 1997
                    through October 4, 1997                ($ 1,600,000)

                  From August 31, 1997
                    through November 1, 1997                $         0

                  From October 5, 1997
                    through November 29, 1997               $   500,000

                  From November 2, 1997
                    through January 3, 1998                 $ 8,000,000

                  From November 30, 1997
                    through January 31, 1998                $ 2,600,000".
</TABLE>




                 Amendment No. 10 to Letter of Credit Agreement
<PAGE>   3
                                      - 3 -




                  Section 3. Miscellaneous. Except as herein provided, the
Letter of Credit Agreement shall remain unchanged and in full force and effect.
This Amendment No. 10 may be executed in any number of counterparts, all of
which taken together shall constitute one and the same amendatory instrument and
any of the parties hereto may execute this Amendment No. 10 by signing any such
counterpart. This Amendment No. 10 shall be governed by, and construed in
accordance with, the law of the State of New York.




                 Amendment No. 10 to Letter of Credit Agreement
<PAGE>   4
                                      - 4 -




                  IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 10 to be duly executed and delivered as of the day and year first
above written.

UNITED RETAIL GROUP, INC.               THE CHASE MANHATTAN BANK,
                                          individually and as
                                          Collateral Agent


By /s/ GEORGE REMETA                    By /s/ CAROL A. ULMER
   -------------------------               -------------------------
  Name:  George Remeta                    Name:  Carol A. Ulmer
  Title: Vice Chairman                    Title: Vice President

                  Each of the Subsidiary Guarantors, by its signature below,
hereby consents to the foregoing Amendment No. 10 for purposes of its Guarantee
under Section 6 of the Letter of Credit Agreement and agrees that the
obligations of the Company under the Letter of Credit Agreement, as amended by
said Amendment No. 10, shall constitute "Guaranteed Obligations" for all
purposes of said Section 6 and the Security Documents (as defined in the Letter
of Credit Agreement).


                              SUBSIDIARY GUARANTORS


UNITED RETAIL HOLDING                   UNITED RETAIL INCORPORATED
  CORPORATION (formerly                   (formerly known as Sizes
  known as Sizes Unlimited                Unlimited, Inc.)
  Holding Corporation)


By  /s/  Kenneth P. Carroll             By  /s/  Kenneth P. Carroll
  -------------------------               -------------------------
  Name:  Kenneth P. Carroll               Name:  Kenneth P. Carroll
  Title: President                        Title: President


SMART SIZE, INC.                        UNITED RETAIL LOGISTICS
                                          OPERATIONS INCORPORATED
                                          (formerly known as Sizes
                                          Unlimited Florida, Inc.)


By  /s/  Kenneth P. Carroll             By  /s/  Kenneth P. Carroll
  -------------------------               -------------------------
  Name:  Kenneth P. Carroll               Name:  Kenneth P. Carroll
  Title: President                        Title: President




                 Amendment No. 10 to Letter of Credit Agreement
<PAGE>   5
                                      - 5 -




UNITED DISTRIBUTION                     THE AVENUE, INC.
  SERVICES,INC.


By  /s/  Kenneth P. Carroll             By  /s/  Barry Goldin
  -------------------------               -------------------------
  Name:  Kenneth P. Carroll               Name:  Barry Goldin
  Title: President                        Title: President




                 Amendment No. 10 to Letter of Credit Agreement