Lack of merit means that, in the judge's opinion, the dog is not close enough to the breed standard to be eligible to compete for the points or BOB. It's kinda of confusing at first. The 1st place winner of each class goes back in the ring, males with males. females with females. The judge then selects the dog he feels is the best and that dog is awarded winners (dog and bitch) and those are the only dogs of that breed that get any points. Some judges will withhold all ribbons in a class they consider lacks merit. There's a lot more, but I won't go into it unless someone is interested. It's pretty boring.
Withholding for lack of merit is not the end of the dog's career. Many dogs that have had ribbons withheld go on to finish their championships. It is only the opinion of one judges and not every judge has a good eye for a GSD.
Clearly showing a GSL at an AKC show is going to be a difficult journey and most are not going to do well under all judges; imagine an ASL at NASS or the BSZS, same difference.