The Blues were in for Lukaku, 24, only for the deal to be gatecrashed by Jose Mourinho.
Their old boss lured the big Belgian to Old Trafford instead leaving Chelsea to reassess their transfer plans.
They went back to the drawing board and settled on a £70m deal to sign Real Madrid striker Alvaro Morata.
Former Arsenal striker Smith thinks signing Morata is good business and believes missing out on Lukaku may even help them.
Smith told talkSPORT: "They are the team to beat (in the league) because they won it comfortably didn't they.
"There was a time a few weeks back where I thought it had seemed to have gone a bit quiet.
"With Diego Costa they relied so heavily on him to lead the line.
"(I thought) how are they going to replace him? Conte didn't want him but in Morata I think they've bought well.
"I think it worked out well for them that they got him rather than Lukaku who may not suit Chelsea's style quite as much.
"Can he get that 100 per cent out of his players or close to every week in the way that he did last year?
"It's a tough ask, he's going to have a few more challenges this season."
