Peg is, of course, also a slang term for the membrum virile, particularly when in a state of tumescence. Sailors would often when in foreign parts buy cheap gaudy dresss which they then transported back to Liverpool. When going ashore they would, for speed and convenience, dispense with their trousers and carry two or three of these dresses on coathangers hung on the peg (which after a year or two at sea would be in an appropriate condition). On meeting Maggie May or some other "lady of the town" the sailor would offer a choice of dress"off the peg" in exchange for services rendered. This ,as far as I am aware, is the origin of the phrase.