Why Are Discount Stores Full of XS and XXL Clothes?

My former Ph.D. student and frequent co-author Erik Snowberg sends along an interesting question:

Why do discount clothing stores (like Nordstrom Rack — and clothing sales in general) have an excess of really small and really large sizes?

I have to admit, I’ve always wondered. Erik continues:

The typical answer seems to be that there are more medium [people] in the world than XXL’s. Duh. But the problem with this idea is that clothing buyers for stores obviously know this. And if they didn’t at first, they should have figured it out by now.

Hmm. He’s right — it is important to think about the supply side as well as demand. If there are twice as many mediums as XXL’s, then twice as many should be produced; and so it should be about as likely that a store will be left with excess mediums as XXL’s.

Here’s Erik’s explanation:

My best guess is that for some reason small and large people are, in general, less willing to pay for clothes. Maybe because they are outside of the norms for physical beauty, they believe that sharp clothes won’t help them that much. Whatever the reason, a clothing store can’t set lower prices for different sizes, so it price discriminates by waiting a little bit and putting remaining stock on sale — which happens to be (surprise!) in the large and sometimes small sizes.

That’s a pretty interesting story, and it may well be right. But there must be readers with better information, or competing theories.

What are your thoughts?