Kmart boss Ian Bailey says he expects Amazon to shake up Australia’s retail landscape when it sets up its local presence but he is confident his business can hold its own against the global online giant.

“I see them as another competitor coming in that’s going to fragment the market further,” Bailey, managing director of the discount department store chain, told a business lunch in Sydney.

“Undoubtedly, all businesses will lose some number of customers to Amazon because they are probably going to get a reasonable start.”

Already dealing with soft consumer spending and increasing competition from overseas businesses, the Australian retail sector is now dealing with the financial implications of Amazon’s impending arrival.

Retail giant Wesfarmers, which owns Kmart, Coles and Bunnings, announced on Wednesday it had decided against spinning off its Officeworks business and listing it on the share market due to a subdued appetite for retail stocks.

Bailey said increased competition in recent years had fragmented an Australian retail market afflicted by weak growth, leading to fierce price competition.

Kmart’s business model revolves around lower prices but a lot of the market is struggling to cope, he said.

Even if Amazon’s local operations become a $5 billion business in five years, Bailey said, that would still be a tiny proportion of the Australian retail market.

“The mistake for us is if we try to replicate Amazon, if we try to be an Amazon-equivalent, because all of a sudden we will try to be somebody we are not. It never feels right, it never looks right,” he said.

Kmart’s total sales in the first nine months of the current financial year were up 7.3 per cent on the previous year to $4.2 million, and its comparable sales were up four per cent.

Bailey said Kmart was doing better than many of its competitors but is still not at the top of its game and has immense opportunity for growth.

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