and if they're successful in shaking off the "cheap department store watch" image of regular Seiko among mainstream consumers

Seiko seems to be trying to do this already, with them covering up the inexpensive models, and pushing their higher costing models. Looking at their site, you'd never guess they made watches that cost less than $200. Their cheapest automatics on SeikoUSA are over $300.

On the other hand, the higher the prices, the more people are buying the brand, and to completely divorce itself from the affordable and functional watches would make them in the same boat as Swatch Group and the rest of the luxury watch market.

gain traction as a prestigious luxury brand

I hope Seiko doesn't follow the footsteps of the Swiss watch makers they put out of business a few decades ago.