Right now, cardboard and thick heavy-stock paper is what I'm picturing will work best. I'd like to avoid hard plastics that will scratch the watches.
What I'd really like to do is recreate the structural elements of a Rolex or Omega watch case, but shrink it down (Rolex boxes are especially big (8x6x4 inches), and instead of plastics, leather, cushions, and fabric I'd like to use heavy stock paper (brown recycled paper could work well), cardboard and any other inexpensive but "authentic" feeling materials. Securing the watch in place will probably be the more challenging aspect of this project.
Something that Shinola (shinola.com) does to help the watch bracelet keep its shape when it ships its watches, is they take a colored heavy stock recycled paper (or thin cardboard) and fold it inside the bracelet. The paper is stiff enough that it pushes the bracelet out helping it to maintain a sturdy, circular shape. (a much more affordable alternative to a leather or suede wrapped cushion). The challenge now is to find a way to secure the watch in the box. This might be as simple as using colored tissue to cushion the watch in the box, but I'd like to see what your ideas are. One more thing to think about is the packaging needs to be simple enough for the customer to easily and quickly repack the watch to return to D&C.
Looking forward to seeing your ideas!