Yeah, I mean obviously they’re not just gonna throw out the returned watches. They will refurbish them and sell them at a discount or use them as warranty or AppleCare+ replacements. Processing the return and replacing the damaged components still costs money. And costs are always going to be passed on to the consumer so the business can stay profitable. That’s just how business works.
I'd doubt that. It takes quite a bit of effort to heat and remove a screen on these devices and then clean off the glue inside. If that's (If it can be?) automated - then, sure they might... But when you're dealing with the volume Apple does - I'd bet they don't. Apple makes it harder on themselves to make it harder for their customers.