It was a wise business decision. Schools, home users and small businesses purchased LC family Macs by the million because they didn't need NuBus slots and wanted a cheap Mac. The PDS slot provided basic expansion (ethernet, video, frame grabber, IIe workstation, accelerator) which was enough for most people.
The form factor is still very popular, hence the OP's comments. Lots of buyers still want a slim box on which they can stand a monitor. It isn't to my taste but it suits people who need a compact system.