All you need to do is install the update via the watch. Place the watch on the charger, make sure you have at least 50% charge, press the button below the crown, then on the screen, swipe up and enter your passcode. Click the crown and open the settings App, click General and then 'software update' and it should update successfully. If the update stalls, go back to Settings and click Wifi, disconnect and reconnect. Make sure both the phone and the watch are on the same Wifi connection. Bare in mind that if it's a big update it may take a while to complete.