1. "The technology's capability was inferior to what humans were creating, therefore the quality of the output dropped."
2. "The costs of employing humans created a floor to the price/quality you could offer and still make a profit. Without the human labor, a lower-quality product became possible to offer."
The first is a question of engineering, the second is a question of economic choice and market-fit.
The fabric and clothes were worse, and cheaper. This put many traditional workers out of business, making actually good clothes scarcer, and eventually, more expensive than they previously were.
