The problem is that a watch is an object of fashion first and foremost. That's why you can find people willing to pay $10k for a Rolex Submariner or, say, an Omega Speedmaster "Dark Side of the Moon". They're the ultimate status symbols. That's what watches have become -- status symbols.
Apple clearly understands that with their Edition edition (though they didn't think through that name very well) and the general high-end finish of all the watches (even the Sport edition has a stainless steel frame around the watchface), but I think it was a mistake for them to choose a rectangular screen. I personally had hoped Apple would be the first company not just to make a circular smartwatch, but to also design a custom UI for a circular screen as well (as opposed to just slapping on Android Wear like the Moto 360 does).
They are not even remotely as popular as circular watches. I don't personally know a single watch aficionado who wears a square watch.
I'm sure a watch that was 6 inches wide and went halfway up my forearm like a gauntlet would be awesome to type on and read email, but I wouldn't wear it because it'd be super ugly.
Genuine question: Did you include "rectangular" because you would prefer a circular smartwatch? I genuinely don't understand why people would want a round smartwatch. I don't see how a round screen would provide a good UX (this is why they don't make round monitors, or round smartphones).
Even if watches are traditionally round, I wouldn't want to have to build a UI around the constraints of a circular screen.
Whether you implied this, I have seen multiple people voice their preference for a circular smartwatch, so just trying to understand the logic vs. the constraints it would impose.