Skin irritation from Apple Watch

I have been experiencing some skin irritation right under the Apple Watch (I have the Series 3 Nike 42mm Aluminum case GPS only). It started with a small red area, but now it's grown to a penny sized red area with scabbing... It doesn't hurt, but I don't think this should be happening. The area affected is exactly under the part of the watch where the LED lights are located, so the issue is definitely not related to the band.

I visited the Apple store in SoHo NYC earlier today, and they suggested that they give me a new watch, exact same model, because "the coating (???) on the area where the LED lights are might not be adequate on the watch". I took their advice, and exchanged my watch for an exact same new one. But I'm not sure this is going to help. They said that "if the problem persists, I should go back", and they'll see what else they can do.

Does anyone else have such skin irritation issues from the watch itself, and not the band? I have been Googling about this, but all I have found is people having issues with the bands giving them allergic reactions, not the watch itself.

Thanks!