In retail, digital twins are virtual replicas of real-world products, stores, or processes, helping retailers model everything from supply chains to store layouts.
“It’s an idea in your head, and there’s a reality you’ve created, you simulate, and play in it, and results happen. You can do the same thing in business,” said John Furner, president and CEO of Walmart US at Retail’s Big Show, put on by the National Retail Federation (NRF) earlier this year.
Digital twins may play an even bigger role in retail now that retailers must navigate the uncertainty around tariffs. Here are four ways they can help retailers prepare and respond.
1. Forecasting cost impacts
Digital twins help retailers model the effect of tariffs on a SKU-level, predicting how cost increases will impact overall sales.
- This allows businesses to adjust their strategies in real-time, which is crucial considering how quickly the landscape is changing.
- “Tariffs can be imposed at any of the following levels: raw material, manufactured or semi-finished goods, or finished products,” Nari Viswanathan, senior director, product segment marketing at supply chain optimization company Coupa, wrote in a blog post. “Knowing the product tariff points is crucial to enable enterprises to identify specific areas where costs are likely to be affected and create effective strategies for dealing with such impacts.”
2. Testing sourcing alternatives
By simulating shifts in production from tariff-affected countries to alternative suppliers, retailers can evaluate costs, lead times, and potential risk for more informed sourcing decisions.
- In the past, Target has used digital twin tech to improve its supply chain and inventory management processes, improving its supply chain efficiency by 25% and reduced excess inventory by 15%, according to AI solutions provider TheCodeWork.
3. Optimizing inventory allocation
Digital twins predict which markets will face the most significant tariff-related cost pressures, allowing retailers to adjust inventory and avoid overstocking or understocking.
- Previously, Walmart built digital twins of its stores and fulfillment networks to model traffic flows, inventory levels, and disruption scenarios, per TheCodeWork.
- It achieved a 20% reduction in out-of-stock incidents and a 10% increase in in-store sales after optimizing layouts and inventory placement.
- The Home Depot also deployed digital twins to optimize store layouts and warehouse flows, achieving an 18% reduction in stockouts and improving checkout and service speed.
4. Modeling pricing and promotions
Retailers can test different pricing strategies and promotions to see how tariff-related cost changes affect demand, helping them fine-tune pricing without losing customers.
- 39% of US retailers say predicting the impact of future pricing, assortment, or promotional decisions is a leading operational challenge in their merchandising strategy, according to December 2024 data from Retail Systems Research.
- With digital twins, retailers can simulate scenarios like, “What happens if we raise the price of this SKU by 5%?” or “Will a 20% discount drive enough volume to offset margin loss?”
- This lets teams test prices dynamically across products, locations, or demographics—without having to risk harming the bottom line.
This was originally featured in the Retail Daily newsletter. For more retail insights, statistics, and trends, subscribe here.