We buy a lot of our clothes from Good Will or mom-to-mom sales or Once Upon A Child (second hand kids stores, with nice merchandise); for a shirt, maybe $2 to $5; pants $3 to $5. Undies and socks, we buy new at Walmart or Meijer or Target.
If it's a special occasion, we buy the items at Kohl's. We signed up online for their discount mailers, and in addition to the coupons, they often have in store sales and you can combine the store sales prices and the coupons for better discounts. So, at most I've spent $8 for pants, $7 for shirts, and maybe $30 for a dress up outfit.
For shoes, sometimes we buy used (Once Upon A Child) and sometimes we splurge on new (typically Target, Kohl's or Stride Rite).
Personally, I'd rather use the money to go do something fun, that will create a memory for our family, like go to the zoo or buy a membership to a kid's play place. The new cute clothes are cute, but they outgrow them so fast, and I know that I'll only keep one or two from his childhood to treasure, and I won't remember the clothes later---but I will remember the fun times. :)
If you love the name brand stuff and the new/in fashion stuff, check your area for upper end second stores, because they usually have a good selection of name-brand stuff. In our area, Once Upon A Child is the chain, but there are also individual mom & pop type places too. If you have stores like Tuesday Mornings and Play It Again Sports, check near them because the second hand places tend to locate near each other.