My niece runs a business that relies on the way we discard clothes. She buys clothes from suppliers in India who source them from the bales of discarded clothes sent to them from Europe. Her suppliers have in effect sorted through the mountain of discards to find the ones that have sufficient value to sell back to us. She specifically buys clothes that have 'vintage' appeal (think tailored jackets rather than hoodies) and sells them primarily to students in a northern English city. Her business has done well enough to move from market stalls to a dedicated high street store and she is just branching out into 'vintage' kids clothes.
However, made on demand will likely cost more, plus you can't fit items first. Unless they make items for fitting which you can then order to have manufactured.
But yeah the main thing is that on-demand can never compete with mass production even if a big part of the mass produced stuff is discarded.
This is definitely not universally true. E.g. photos are very cheaply printed on demand. Even on-demand books are printed at reasonable prices. Sure, mass production is cheaper (both for books and pictures), but the value difference of the individual product is high enough to bridge the price gap.
For cloth this area has found little exploration. TFA covers production at niche scale. If you would mass produce the looms to reduce the capital expense and heavily lean into customer value, e.g. individual fittings via 3d scans, as my sister comment proposes, or even just letting me customize my sweater with motive, color choice, garment etc., this could radically change the cost to value ratio. The company that has published TFA sells extremely bland apparel in a shop that looks just like any mass produced clothing shop and leaves all of the customer value of custom production on the table.
Last but not least: This "3d knitting" seems to need only a fraction of the labor of traditional sewed clothes. If textile production didn't default to underpaid labor under precarious working conditions in low income countries, it would probably already be cheaper.