Lyxen
Great Old One
I don't now what to tell you; dictionaries and (given the context of this discussion) sociologists disagree with you.
Actually they don't, rather than an orientated article, I haver given you the wikipedia article.
Which is fine - you can dislike the term and for your personal uses disregard it, but in a conversation such as this people are going to push back on that.
And I'm going to push back on that push back.
Just...describe groups of people for your campaign in non-offensive ways and with no relation to real world groups of people, I guess? If some people in your setting hold stereotypes about others (which would unfortunately be quite natural, if you want naturalism)
It's not unfortunate, it's normal and enforces verisimilitude. People from one culture will hate another culture's guts, because it's the stuff that both history and fantasy are made of.
then you could make note of those stereotypes and how people (the stereotype-ers, the stereotype-ees, and outside observers) feel about them.
So I'm allowed to have and use stereotypes, which then allows me to use the word without problem. Thanks for the permission.