Arsenal slumped to a 2-0 home Champions League defeat against Schalke - their first at Emirates Stadium since 2009.
The Gunners had been looking for a response to Saturday's lacklustre 1-0 loss at Norwich, but failed to produce one as manager Arsene Wenger watched on from the stands, serving out his European touchline ban.
Schalke now overtake Arsenal at the top of Group B, and were good value for their victory, secured by second-half goals from Klaas-Jan Huntelaar and Ibrahim Afellay.
The Gunners must now regroup ahead of Saturday's visit of Barclays Premier League strugglers QPR and next week's Capital One Cup tie at Reading, but this poor showing will have done little to lift the mood ahead of Thursday's Annual General Meeting.
The visitors started brightly, and had a penalty shout on 13 minutes following a quick break. Jefferson Farfan played in Dutch winger Afellay, who fell over the outstretched arm of Vito Mannone.
There looked contact from the Italian keeper, whose handling error gifted Norwich their winning goal on Saturday. However, Swedish referee Jonas Eriksson waved away the appeals and instead brandished a yellow card to the Schalke player.
There was another scare for the hosts just before the break when Japan full-back Atsuto Uchida got clear down the right and crossed for Huntelaar at the near post, but the usually reliable Dutchman swept a poor effort wide.
The Germans should have taken the lead when Farfan charged past Andre Santos down the right and crossed back to the penalty spot, but captain Benedikt Howedes blasted over.
Schalke eventually got the breakthrough after 76 minutes. Arsenal failed to clear their lines, with Afellay heading the ball back through the centre of the defence and into the path of Huntelaar, who made no mistake from 10 yards.
And it was game over with four minutes to go when Schalke broke quickly down the right through Jermaine Jones, and his low centre was swept home by Afellay.