While the topic of product categorization is conceptually simple, merchants (in particular new merchants) often get it wrong. Often time merchants will think in terms of their categorization their products from their perspective as opposed to the simplest structure for a customer to shop.
Lets use the example of a new small apparel manufacturer. They will most likely categorize their products along the lines of mens and womens, and then have sub categories like shirts, pants and accessories. Shirts will be further sub-categorized into long-sleeve, short-sleeve, etc. As this is a new merchant, they are launching the store with only 15 mens products. While their categorization “makes sense”, it results in three clicks for the customer to see any products from the storefront as they select mens, then shirts, then long-sleeve. What is worse in this scenario is that when the customer gets to long-sleeve they only see one product. Even more frustrating is when a customer selects the short-sleeve category and it is empty since those products will not be available until Spring.
In this case, the merchant would be much better off putting all of their mens products simply into the mens category without any sub-categories. As their mens line grows, then it makes sense to add the sub-categories of shirts, pants, and accessories. As those categories get too full, then it is appropriate to add the needed sub-categories.
Merchants can provide a much better shopping experience if they think of their category structure as something that is organic and can grow and change over time. Launching a store with a rigid category structure that results in many sub-categories that contain few products is a disservice to customers and makes their shopping experience more cumbersome.
When constructing categories, work from the bottom up. What is the most efficient way for a customer to navigate to your product? Not, where does this product fit within my category hierarchy. Your customers and your sales will thank you.