Petite clothing sizes are for women under 5'4". They are the salvation of people like me, who are short but have developed enough roundness through the hip to make buying juniors' sizes a chancy proposition. They are also apparently becoming harder to find.
It's true that petite garments can tend toward the frumpy, but they need not do so. I find it odd that even as trendy retailers like Banana Republic expand their petite offerings, department stores are cutting them. Maybe they just need better buyers in the petite sections of those stores.
I always go to stand-alone retailers, not department stores, for petite clothing (Ann Taylor's petites are nicely proportioned) because even the smaller sizes of petite suits at department stores can often look like they were designed with the ladies who lunch in mind. The last time I broke that rule, I had a very disappointing Nordstrom experience in which the clerk could find exactly one conservative women's business suit that was made of wool. Tacky items bedecked with fabric bling were everywhere, though. It sounds like this is less a failure of demand than a failure of department stores to appeal to style-conscious short women.