Sure, I could quickly complain that the store judged me, didn't like me, didn't like what I was wearing, or something else and say the store is judging me in some unethical way - but these would be claims with little supporting evidence. But, from a business perspective, it's quite simple. If you're local, the store has the opportunity to sell that client more products in the long run and build a relationship. For a tourist, the store is less likely to be able to have a profitable relationship in the long run. So when watches are scarce and highly desirable, the business would rather build a relationship with a local. If there are watches that don't sell well (like a really unattractive model with a funky dial color) then the store would be happy to sell that to a tourist. But anything within the range of normal to desirable, they'd rather make a local client happy. Makes perfect sense to me. When times go back to normal - the stores will sell to everyone again soon.
I ended up buying the watch I wanted (this was a non Patek watch) on Bond Street in London, but had to pay VAT - as that store refused to ship out of the UK and as you already know, UK no longer does VAT refunds. But I had been a client at that store previously, so I was at least a known person in that store.