I can confirm this is currently broken (Apr 2025, Xcode 16.3). If you follow the steps outline by Apple in Creating independent watchOS apps when you're ready to submit to the App store, App Store Connect will not work.
Distribute App is replaced by Distribute Contents, and there is no option in the Method panel for App Store Connect or TestFlight.
The only workaround seems to be to create an iOS app target.
Setting the Build Settings for the iOS target to "Skip Install" again leads to breaking the distribution flow, so it seems you must submit an iOS binary if you want to sell a watchOS app. You can at least set your watchOS target to "Supports Running Without iOS Application" for your users, but it looks like you need to pass App Store Review for an iOS app, even if you are only creating a Watch app.
Topic:
App & System Services
SubTopic:
General
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