Setup Categories
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Its best to decide on and set up your categories first then add products.
Categories are managed via Product Setup >> Product Details on the Categories Tab.
It is best to set up Parent Categories first then add your Child Categories selecting the appropriate Parent Category.
Click Add Category to add a category, set the name, optionally a number to indicate the ordering of the categories and if adding a child category choose a parent category.
Once categories are added they can be edited and images added via the edit icon:
Test descriptions for categories can be managed via Product Setup >> Product Details on the Text Descriptions Tab.