A wave of gloom swept over the high street as three of the UK's biggest retailers admitted that profits would be hit by poor Christmas sales.

Tesco, Morrisons and Marks & Spencer all blamed heavy discounting, a squeeze on shoppers' spending power and unseasonal autumn weather for falling underlying sales and lower than hoped for profit margins. The barrage of poor figures also highlighted a changing retail world in which shoppers are increasingly purchasing online and buying their groceries in small convenience stores or at discounters such as Aldi or Lidl.

IGD, the grocery industry research group, said that 50% of shoppers bought something in a food discounter in December. Sales have gone into reverse at large out of town stores as shoppers increasingly choose to buy little and often close to home, which helps cut down on waste and save petrol.

Shares in Morrisons sank nearly 8% to 234p as the Bradford-based chain surprised the City, bringing forward its Christmas trading update and warning profits would be at the bottom end of City forecasts. The update showed a dramatic 5.6% decline in sales at established branches in the crucial six weeks to 5 January.

The supermarket blamed a variety of factors for its dire performance, from shoppers choosing to spend more at discounters to its lack of an online grocery service, too few convenience stores and poor IT systems, which left it struggling to fight increasingly sophisticated promotions from rivals. The drop came despite help from food inflation and a 0.5% boost to underlying sales as a result of Morrisons opening its stores on Boxing Day and New Year's Day for the first time.

Its chief executive, Dalton Philips, said about half the fall in sales was linked to shoppers choosing to spend more money at discounters' stores than ever before at Christmas.

"People are being economically squeezed so they are not trading up and they are splitting their shopping basket among different stores," he said. "They have been buying their confectionery from one store and their wine from another store this year. It's a big shift."

Tesco, Britain's biggest supermarket chain, also revealed worse-than-expected Christmas sales, down by 2.4% in the UK, when gains from new space and petrol sales were excluded . "Clearly Christmas was disappointing," said its chief executive, Philip Clarke. The retailer admitted that profits would come in as much as £150m below expectations set only last month after a tough end to the year.

Clarke said online and convenience store revenue had risen, but the group's out-of-town superstores had suffered falling sales. He said: "It's tough because the market is tough and consumers are still feeling they don't have as much to spend."

He said Tesco had taken action to limit price increases in the past six weeks and hinted that the company's profit margin of 5.2%, previously seen as a line in the sand, might come down.

Tesco and Morrisons performed markedly worse than rival Sainsbury's, but all have been battered by the discounters. Andrew Stevens, a retail analyst at Verdict Research, said the poor performance of the major grocers put the strength of Britain's economic recovery in doubt.

He added: "The emergence of discounters as a bigger threat than many anticipated has meant the UK's largest grocers have emerged into 2014 with battle scars and nothing much to show for the fight."

M&S said it had suffered its 10th quarter of declining like-for-like clothing and homewares sales, and it is now three years since the chain has seen underlying growth in its general merchandise business. It was forced into almost unprecedented discounting on key seasonal items such as knitwear in the week before Christmas. The poor sales came despite chief executive Marc Bolland's efforts to revamp clothing with a new management team, refurbished stores and huge investment in IT and logistics operations.

Bolland blamed unusually warm weather in October for the underlying sales fall and improved business in the final weeks before Christmas, helped by big discounts, could not make up the lost ground.

He accused other retailers of kicking off a price war in December, forcing M&S to offer discounts of up to 30% on clothing in the week before Christmas Day. Rival Debenhams unveiled a profit warning last week after it discounted aggressively in the runup to Christmas, although clothing and homewares store Next – which refused to join in the price-cutting until Boxing Day – had a strong festive season .

Total UK sales rose 1.5%, helped by a 1.6% rise in underlying sales of food, as M&S took a bigger share of the market over the festive season. But even the increase in M&S food sales was less than City analysts had expected.

Finance director Alan Stewart said: "Clearly our food business was a winner and had a very strong performance. Market expectations were higher but that was because it was a bit of a surprise that the market as a whole got worse."

Analysts said there was a sense of relief that trading hadn't been worse, but still trimmed their profit forecasts by about £20m to an average of £630m – down from £1bn in 2008.

The poor Christmas trading figures are not helpful for the bosses of Morrisons, Tesco and M&S who are all under pressure to revive their businesses amid heavy competition in a tough and rapidly changing market. All three yesterday insisted they had the right strategy in place and merely needed more time.

Bolland, whose position at the top of M&S has been questioned by some shareholders for several months, said: "We are [heading] in the right direction. It is hard to get there but I take every quarter on the chin if need be because the company needs to go in the direction it is going."

But Clive Black, an analyst at Shore Capital, said the retailers could not blame their woes entirely on problems in the market. "I don't buy into the idea that all the factors were outside their control."

He pointed to the success of Aldi and Lidl as well as Waitrose, the Co-op and M&S's food over Christmas. Convenience store group Nisa also revealed strong Christmas sales, up 15.3% in December on the previous year.

Mike Dennis, an analyst at Cantor, said Tesco's performance was particularly poor given that, 21 months into a £1bn turnaround plan, it had introduced a new price matching promotion, refurbished more than 100 stores and given a high-profile relaunch to its premium food range, Tesco Finest.

"Our view is that management still has a lot of explaining to do over the poor relative UK sales performance," he said. "Tesco has been unable to differentiate itself from the competition."

Marks & Spencer

Christmas sales update: Food: +1.6%

Fashion and home: -2.1%

Chief executive: Marc Bolland, since 2010

Turnover 2013: £10bn

Profit 2013: £580m

Stockmarket value: £7.2bn

Share price: 465p

The problems:

• Fashions don't appeal to enough shoppers

• Aging customers

• IT and distribution behind the times

• Food is doing well, but Christmas sales were below City expectations as shoppers watched their spending

Tesco

Christmas sales update: UK supermarkets: -2.4%

Chief executive: Philip Clarke (since 2011)

Turnover 2013: £65bn (worldwide)

Profit 2013: £3.7bn

Stockmarket value: £26.5bn

Share price 325p

The problems:

• Shopping habits changing rapidly: customers deserting big stores for convenience shops and going online

• Losing cash-strapped customers to discounters

• Stores need a makeover

• Numerous problems with overseas stores too

Morrisons

Christmas sales update: -5.6%

Chief executive: Dalton Philips (since 2010)

Turnover 2013: £18bn

Profit 2013: £897m

Stockmarket value: £6bn

Share price: 233p

The problems:

• Late into online grocery shopping (starts Friday)

• Late into convenience stores - Morrisons only has 85, compared to 1,500 Tesco Express outlets

• Very limited non-food ranges

• No clear position in the market