J.C. Penney Co. Inc. (NYSE: JPC) is really up against it. Several media outlets report that it will try to raise $1 billion, as new CEO Myron Ullman III labors to salvage what is left of the retailer.

J.C. Penney lost about 20% of sales this year, and apparently lost another 10% in the quarter that just ended. J.C. Penney has a market value of only $3.7 billion, so the sum its wishes to raise is very high, based on the company’s fortunes. Wall St. needs to be convinced that the company can cut costs quickly. At a retailer with disastrous same-store sales, that means closing hundreds of stores.

J.C. Penney has about 1,100 stores in the United States. By a crude measurement, if same-store sales fell more than 25% last year, a great number of these locations performed much worse, with drops that exceeded 30%. Management cannot justify keeping those stores open, especially with the costs of the workers who man them and the inventory expenses to keep them stocked.

One the other hand, J.C. Penney likely has locations with very moderate drops in same-store sales, or that even may have had improvements last year. It would be extraordinary if every single J.C. Penney location was a disaster.

No case can be made that J.C. Penney should remain as large a retailer as it is now. The only way to salvage the retailer short term is to prove it can show a profit with a much smaller store footprint across the country.

J.C. Penney likely needs to close virtually all of its stores that have 35% sales attrition rates or greater. Based on a bell-shaped curve of its number of locations, the number of stores that fall into that category could easily be a third. If those locations remain and continue to post weak results, the company’s overall sales-to-cost ratio cannot get better. A third of J.C. Penney stores would number more than 300.

Of course, there is a cost to close these stores. That may be part of the reason J.C. Penney needs the $1 billion. Employee severance and the expense of broken leases could run into the hundreds of billions of dollars. Not all the inventory at stores that are closed can be sold.

If J.C. Penney can be turned around, management can only be successful operating a much more modest sized operation. And that means hundreds of stores will disappear.

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