I don't think that's "the problem." There's been a global resurgence of actual fascism over the last 20 years. Nationalistic, racist, xenophobic, dictatorially structured, scapegoatism, corporatist, all the boxes checked. It's been my experience people complaining about the term being "watered down" have dipped their own toe too much in that pool, i.e., they think some elements of it are excusable, sympathize with the actual fascist figures, and hence rush to their defense.
Fascism never caught on anywhere with the public in any country because the whole population was all suddenly cartoon villains. The public got sold a belief system that was appealing to them, that made sense to them, that's how they fell for it. They'd put in elements of truth into what they were saying, or appeal to basic grievances that the population had.