There are a couple things you might try.
Firstly, you can scale up the clothing a bit in the "conform" panel.
77% of original size (was 653x19) - Click to enlarge
Secondly, you can use the mesh edit tools.
77% of original size (was 653x19) - Click to enlarge
Combining these tools, you should be able to make some loose fitting, baggy clothing. Don't scale the clothing to far away from the body though, because it is rigged to the skeleton, and may give distorted results. Play with it to see what works well for your needs.