I'm 29 and have been collecting Hello Kitty for years. It's not just for kids (or at least that's what I tell myself) :)
I've found HK fabric at Joanns. Look at the seasonal section of the quilting fabrics. Right now, there are two Christmas patterns out as well as a flannel. And many stores have stock from previous holidays. Also look in the licensed characters section. Fabric.com has some HK fabric, but it's jersey.