The Gunners are facing a last-16 exit from the Champions League after a 5-1 mauling at Bayern Munich on Wednesday night, while they sit 10 points behind leaders Chelsea in the race for the Premier League title.
"The problem is with Arsene Wenger is he brings in nice players," Merson told Sky Sports News. "They get beat, they'll all be sitting there going 'that wasn't very good, was it?'
"He ain't gonna buy a Roy Keane kind of player, who's going to question his tactics - he wants players around him that are nice. That's the problem - it's nice, they're comfortable, and they're letting him down now. At the same time he's the one who brought these players in.
"Sometimes you've got to draw a line. He takes all the stick. I'm one of those people on his back as much as anyone else, but let's draw a line now.
"These players are letting him down. These are the ones. He's put a lot of faith in these players who have been there for a long time, not a year or two years... they're not performing, they're letting him down and they keep getting away with it."
Next up for Arsenal is a potential banana skin when they travel to National League outfit Sutton United in the fifth round of the FA Cup on Monday night.