My 2nd DD has inherited my 1st's clothes, but people still buy her clothes all the time and we pick up new stuff for her as well. And not everything can be passed down. SO it's not like she's in complete re-runs.
When i do my monthly growth pics i make sure she's in new outfits and you know what, i seriously have 10,000pics of my kiddies and not myself or one person who looked at a pic went oh yeah, G wore that when she was A's age. It's more nostalgic-like awww, remember when G was small enough to wear that cutesy adorable outfit that still looks brand new!

ANd hey if you have the money, why not, donate all the clothes and start new with a new baby.

ETA: The 1st's outfits, holiday outfits, coming home outfit-the special ones, never get passed down and I always buy new for the younger one :)